Are you brave enough to make your accountancy firm less and less reliant on you?
Planning to secure the future of your firm, but with you less involved, pays off in many ways.
So, what exactly does the future of your firm hold for you, for your fellow owners and, of course, for your team and your clients as well?
Start to build capital value...
Unfortunately, most business owners fail to build their firm in a way that grows its capital value – all because the firm relies so heavily on the owner.
As a result, they fail to build in options that support everyone (including themselves as business owners).
By preparing your firm for sale to an external buyer, you create more options for yourself as an owner as well as for all the people you care about in your firm.
It takes bravery to face up to this brutal truth...
It’s unlikely that the author and philosopher Eckhart Tolle was considering the lifecycle of your firm when he said:
“The contemplation of one’s mortality... is a liberating act that makes life feel considerably less heavy.”
However, Tolle’s words point to a brutal truth for all business owners – you don’t live forever and you should work out what you want for yourself and for your firm.
As Tolle suggests, this ‘contemplation’ (planning) can bring a ‘liberating’ sense of freedom.
Here’s how it can work...
Start with the 4 helping hands here or read on for the full Bitesize Business Breakthrough.
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Freedom is a strong reason...
Even though it’s hard to imagine that you’ll ever want to leave the firm you’ve worked so hard to build, for many reasons it makes sense to steadily prepare your firm for sale:
The process of preparing your firm for sale involves making it less reliant on the owner(s) – you!
Even if you choose not to sell, preparing your firm for sale means you create options, bringing a sense of certainty, security and clarity to the future of your firm. You also increase the value of your firm.
Take your time, start early...
It’s hard enough simply running a firm – product and service creation, client meetings, operations, delivery, marketing, selling, HR, admin and lots more – you’re already busy.
Adding to this jam-packed mix of challenges and responsibilities can feel daunting. And so it pays to take your time (if you can), which means starting the process of preparing your firm to work without you now, before you need to sell!
STOP waiting until you’re ready to sell to prepare your firm for sale
START building a better firm now by preparing it for sale
John Warrillow has started and exited four companies, selling one to a listed company. He’s conducted radio interviews with hundreds of entrepreneurs. He’s also helped many business owners prepare their businesses for sale and, in his book 'Built to Sell', he shares his experiences.
“The following eight steps provide a
road map for creating a company
that can thrive without you.”
John Warrillow –Built to Sell
Step 1: Focus on one thing...
Most firms naturally want to do more and more for clients and to create more products or services that clients can buy.
For example, a flower shop starts out selling flower arrangements. They do standard bunches and custom arrangements to order.
Then they start doing wedding and funeral arrangements. They pick up corporate contracts and start selling planters.
They start a care and watering service for the planters.
Now they might as well sell plant pots and silk flowers. Perhaps they could sell coffee and cakes for customers to have while they wait.
Could the florist/plant shop/café become a restaurant as well?
Complexity builds as revenues build, typically making the business more reliant on the owner to manage all the moving parts.
Instead, with a focus on capital value growth AND revenue and profit growth (and these are not mutually exclusive), Warrillow talks about finding your ‘sweet spot’ product or service or ‘standard service offering’:
Productising a standard offering makes it easier to teach others what and how to do all the jobs of creating, marketing and delivering, making the firm much less reliant on you and building your capital value whilst maintaining or growing revenues and profits.
Step 2: Get 'cash positive'
Cash is either a stress issue or a comfort issue for your firm.
A future buyer will feel the same way. The level of cash stress or comfort you have in your firm will directly affect their willingness to buy and to pay what you want.
As you build a strong and attractive standard service offering, you’ll find less resistance to paying in advance or by monthly direct debit.
Even a hairdresser or gardener can set up a monthly direct debit for regular customers who might, for example, get preferential treatment and priority booking.
A cash-positive hairdresser, unsurprisingly, will be more attractive and worth much more to a buyer than one that simply takes cash at the end of every haircut!
Step 3: Get others to sell for you...
Your firm is stronger when you’re no longer involved in the operations, production or delivery of your standard service offering.
However, if you’re still the rainmaker (the one who makes the sales), you’ll find it difficult to sell your firm without a long and risky earn-out period.
John Warrillow is adamant that you should hire people who are good at selling products, not services.
Avoid salespeople who come from professional services companies as they will want to reinvent your service for every client and not just sell your standard offering.
Step 4: More bravery required - stop accepting non-standard projects!
What do you do when you get a large and valuable order for anything other than your standard service offer?
John Warrillow suggests that, if you’re serious about eventually selling your firm, you’ll need to turn down non-standard orders. This can mean saying goodbye to some big contracts and perhaps even offending long-standing key clients! How hard does that sound?!
This is most difficult at the start of the process of preparing your firm for sale. Because you’re still transitioning your firm from a complex multi-service/product firm, you may well say ‘yes’ whilst your cash flow and profits depend on all sales.
However, as you build the sales, profits and cash from your standard service offering so that they dominate your firm, you’ll find it easier to turn down these non-standard opportunities. This requires bravery and commitment to your capital value goal.
It pays to be aware that the value of your firm is at risk each time you accept non-standard sales revenues:
Follow through on your increasing commitment to your standard service offering and, eventually, clients, employees and stakeholders will realise you’re deadly serious. Buyers will also recognise your commitment and will see greater value in your firm.
Warrillow’s experience suggests that 2 years’ worth of financial statements showing you’re wholeheartedly committed to your standard service offering will ensure that your firm is extremely appealing to buyers.
Step 5: Launch a Long-Term Incentive Plan for Managers
You’ll appreciate how important a management team is to any acquiring firm – they provide business continuity (without you being involved) that builds a prospective buyer’s willingness to pay more and to pay a healthy sum up front as well.
Building a long-term reward plan for key managers that appeals to your crucial team members 12 and 24 months after any sale is key. It’s interesting that Warrillow suggests that it pays to avoid using equity, as it complicates the eventual sale process.
Step 6, 7 and 8: Three moves to make a sale happen
As you engineer your firm for capital value there’ll come a time when you’re ready to sell. Now it’s time to get more help from an expert broker and your lawyer.
When you are ready, you’ll:
6. Find a business broker for whom you will be neither their largest nor their smallest client. Warrillow suggests you make sure the broker knows your industry (because they’ll already know some potential buyers).
By writing an ambitious 3-year business plan that paints a picture of what is possible for your firm, you’ll appeal to acquiring businesses who have the resources to accelerate growth.
“There’s an art to selling a business well. It comes down to how you package it, the story you tell about it, and the feeling it gives potential buyers when they imagine owning it.”
John Warrillow –Built to Sell
7. Inform your team in plenty of time to positively prepare management presentations for meetings with prospective buyers.
After all your hard work building your firm and your team over the years, it can be very difficult to tell your management team about your desire to sell. However, you may be pleasantly surprised when your team understand your goals and appreciate how an acquisition can mean significant career opportunities for them.
And when your team hear about the ‘success bonus’ from step 5, they’ll be even more engaged in supporting your sale of the firm.
8. Converting your favoured offer to a binding deal can be both time-consuming and emotionally challenging.
Excitement at the offer, frustration at the due-diligence (60-90 days of sense-checking all elements of the business) and the challenge of negotiating up-front and earn-out amounts are often fraught.
Warrillow recommends calm, patience and determination to carry a deal through. He also suggests you treat any earn-out as ‘gravy’ – as long as you get what you want for the firm up front, you can always walk if things get too complicated and difficult.
And think about how you will feel when you get an email like this from your bank:
“Dear [your name]. We’ve just received a rather large wire transfer into your personal account...”
4 helping hands for you…
Increasing the capital value of your firm is tied to getting as many buyers bidding for your firm as possible. This means building the appeal of your firm.
A natural benefit of building a more appealing firm is that you’re less willing to sell! This may sound counter-intuitive, but it puts you in a much better negotiating position.
Because you’re likely to enjoy your less-risky, less-stressful firm, you’re more willing to walk away from a weak deal.
However, a day will come when you want to stop and want to sell, so it pays to take the steps needed to prepare your firm for sale in advance:
Commit to building capital value in your firm (as well as revenue and profits) – this requires a new way of thinking and requires you to work ON the firm, not just IN the firm. You start to see your firm as a product to sell and start to make it more and more attractive to possible buyers.
Start making the firm less and less reliant on you – if you were buying a firm and had to choose between two similar firms, where one was highly reliant on the business owner and another worked almost without the owner, which one would you value the most? Work out how to make your firm less and less reliant on you.
Build a cash-positive firm – it makes very little sense buying business debt unless you’re paying very little for the debt. Buying cash reserves or cash-positive, cash-generating firms makes a lot of sense, which is why cash-positive firms are more attractive and receive higher values. Work out the ways and means of improving cash creation for your firm.
Get support from outside experts – chances are you’ll sell one firm in your lifetime, whereas brokers and lawyers are involved in business sales all the time. Find the best advisors to help you when you’re ready to sell.
Of course, you already take your firm seriously. Building capital value is a serious business too – possibly the biggest sale you’ll ever make.
For more insights to help you build your firm for sale, explore the resources from John Warrillow, and look wider afield as well.
TIME TO DISAGREE
“I’m scared about my employees getting the slightest sniff that we might be selling the firm – aren’t we running a serious risk that they’ll want to leave?”
You’re right to be sensitive about this serious issue. The same sensitivity could also be attached to clients becoming aware that you’re selling up.
Instead of thinking about selling your firm though, think about building a firm with greater capital value and a firm that’s easier to run and, perhaps, more enjoyable and secure as well.
Doesn’t this just sound like good business sense?
It pays to let ‘business value growth’ be the focus of your efforts because it’s not until steps 6, 7 and 8 that you’re into the ‘sell your firm’ stage.
“I’m way too busy and stressed, running the firm as it is, to invest time getting it ready for a possible sale sometime in the future!”
Before you started your firm, you invested a great deal of time and energy and all sorts of emotions ran high – fear, bravery, worry, excitement.
Running your firm takes even more of your time and energy, generating even more powerful emotions.
It should therefore be no surprise that when you eventually choose to sell your firm, more time, effort, energy and emotion will be involved.
But the pay-off is significant. The reward for creating a more valuable firm is greater security, continuity and certainty for you, for your team members and for your clients, as well as for any future buyer.
“My firm is stable and profitable, so why would I bother changing a successful model?”
Well done for creating a stable and successful firm. However, to build capital value (and increase your long-term options), stable and successful just isn’t enough...
Many firms provide a strong and stable income for their owners but fail to appeal to an external buyer – all because the financial success relies too heavily on the existing owner(s).
Even a firm that has consistent or growing revenues and profits can be unappealing to a buyer because, again, it relies too heavily on the owner(s).
As a result, the firm fails to provide a rewarding exit route for the owners or a secure future for all other stakeholders – team and clients. Your options will be limited.
Start making your firm less and less reliant on you, over time, and you increase its appeal to buyers AND increase its value AND increase the certainty and security for all the people you care about.
Want to know more?
When you start building capital value in your firm it can feel like a massive shift in focus, which is why it pays to dive deeper into what’s involved.
John Warrillow has provided a brilliant framework and roadmap for the work of preparing your firm for sale.
Built to Sell
“John Warrillow’s story gets business leaders to focus on a critical question: If others wouldn’t pay a fortune for your business, do you have a business worth growing? This is essential reading for owners looking to build a valuable business.”
Verne Harnish, founder, Gazelles, and bestselling author of 'The Rockefeller Habits'
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