How do you prepare your management team for the sale of the business? The importance of engagement.
How do I ensure the company will continue to thrive without me at the helm?
Entrepreneurs have many considerations when it comes to planning an exit from their business – most notably how to ensure the company will continue to thrive without them at the helm.
When the owner-manager lives and breathes the company, performance is heavily dependent on their personality and leadership style. Therefore, the business’s potential to grow without the entrepreneur in the top role is key – particularly ahead of a company sale.
You may wish to put yourself in the shoes of the buyer and ask yourself rhetorically, how will the management team be perceived – as a risk or as a driver?
Taking the time to assess your team’s readiness to step up, as you prepare for an upcoming transaction, is time well spent. They will have a significant impact on the interest your business will generate among prospective buyers and ultimately, the valuation it receives.
Your company’s valuation depends on it
Any issues which may lower profitability can be defined as a business risk. From fluctuations in consumer demand and lifestyle habits, to volatility in the economy and more. These can bring wide-reaching impacts, not least on the assessment of a company’s overall deal value.
Today’s valuations are typically based on the underlying profit of the company, balanced against risks to the business. Along with adverse market forces, an ill-prepared management team can both dampen buyer interest and have a negative impact on overall value. Therefore, entrepreneurs wishing to sell their business should address any avoidable risks, as early as possible.
By implementing a strategic risk plan, it may be possible to reduce the risk profile from the perspective of a buyer. This will also improve the defensibility of your company valuation.
So, whether the entrepreneur’s goal is to leave the business entirely, or to remain in some capacity, it makes good sense to prepare the management team. This is both for the sake of the employees remaining and the legacy of the entrepreneur. After all, no one wants to leave a business to the wolves, or their former employees out to dry.
Assess your management team
Make a start by assessing your leadership structure and identifying the members of your team who will be responsible for ongoing post-sale growth. Following this, make plans to fill any gaps in leadership through recruitment and/or training. It may be the case that the specialist know-how and skill set you need to achieve your goals are in high demand, taking longer than expected to fill those positions.
Using KPIs and an established performance plan can help better understand any weaknesses in your management approach. The warning signs can include:
- Communication problems resulting in siloed teams
- A lack of clarity around performance, impacting overall profitability
- Missed deadlines or inability to follow up on leads
- Culture issues and lack of professionalism
No matter what course the sale process takes, what’s vital is that teams are engaged to continue their normal business responsibilities and functions throughout all stages of the transaction, as well as during and after transfer of ownership.
Sam Miller, Partner at Clearwater Growth
Most entrepreneurs understandably prefer to keep knowledge of an impending sale closely guarded. However, key members of your leadership team will need to be informed of your decision to sell – especially those who will be assisting in the preparations, such as your FD/financial controller.
Being as transparent as possible about the motivations behind the sale of your business is key, says Sam Miller, Partner at Clearwater Growth. “Being honest and upfront with your key leadership about why the business is being sold is important. In some instances, management may first express an interest in exploring whether a Management Buy-Out is feasible. But no matter what course the sale process takes, what’s vital is that teams are engaged to continue their normal business responsibilities and functions throughout all stages of the transaction, as well as during and after transfer of ownership.”
As you plan your exit strategy, you may wish to bolster engagement with key staff by using a bonus or an incentivisation scheme, such as an enterprise management incentives scheme. Providing your core management with an equity share in the business, can help lower the risk of talent moving to competitors, giving employees a vested interest in your company’s ongoing success.
Marketing your business
Realising value through a sale is all about preparation, presenting the business intelligently and in the best light to potential buyers. Besides the commercial aspects of the business, its financial dynamics, particularly the underlying trading performance 12 months prior to sale, will usually be the basis on which the buyer arrives at a valuation. While changes in markets, shifts in technology and luck can also play a part, the underlying factor in all successful transactions is a strong narrative. This should demonstrate how the business has harnessed opportunities in the marketplace and worked to overcome challenges.
As you market your business to interested buyers, it’s advisable to show how your management team has handled change in the past. For example, the team’s resilience in weathering issues related to COVID-19, such as working from home. By showing their robustness, core capabilities and skills, as well as their ability to deliver planned future growth, you will be able to build a narrative which provides purchasers with the assurance to proceed.
Ultimately, it’s about demonstrating that the company is ready to begin its exciting next chapter – from the entrepreneur who founded it, to the team who will drive its future growth.
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