Back to Listing

Choose Your Own Finish

09 July 2013

Denise Hall has been in business for more than 20 years. She has owned, operated and sold three entities in the professional services arena in that time. The most recent sale, a little more than two years ago, proved to her there was a gaping hole in the business lifecycle conversation – and that conversation was around ‘exit strategies’.

“I couldn’t find an overall credible opinion about the process, the options, a best course of action.

“We discuss the business lifecycle and we talk about start-up and growth. Maybe, we get a few tips about exiting the business. In my opinion finishing unfinished business – starting with the end in mind – deserves the same consideration as birth and growth or you risk losing out or even packing it away, without satisfaction,” says Denise.

“I haven’t figured out why, yet, but very few business owners regard their business as an asset,” Denise continues.

“People set up a business and it creates money for them. That’s an asset in my books. It doesn’t make sense to me to invest time, money and effort into building a business only to exit it with less than you put in, but people do, often.”

Recounting the story of her third sale experience, Denise notes that the business had contractors and contracts to honour; people were relying on her business. Aside from that very important consideration, the business was also her largest asset, even larger than her home. Treating it with the respect it deserved was crucial.

“Speaking to my accountant and lawyer – as anyone would and should in a sale situation – they all had an opinion applied through a particular filter. Accountants see numbers. Lawyers see regulations and contracts. Fortunately for me, a business consultant I’d worked with, who was also a broker, was able to offer me the closest thing to ‘overall’.

“He knew my business. He knew what the accountants and lawyers knew, but most significantly, he knew, as a broker, what the appetite was in the market for a particular business at any given time.

“In the end what I realised was if I was ever going to sell a business again, it was me that I needed to talk to about the process,” says Denise, explaining her eventual move into the exit strategy space.

By her own admission, Denise is a “strategiser”. It’s at her core – flowing right down to her decision to have a child and the work and lifestyle choices she made around what she likes to term being a “double parent”.

“I wasn’t prepared to make this life-enhancing and changing decision to then park my child somewhere else while I was off working. It just didn’t make sense to me to miss out,” says Denise, continuing on to explain that owning and running her own business provided her with the structure to support her decision, while also giving her some say over the hours she worked

For Denise, the third plus was: “As an employee there is only so much you can make. Being an employee caps your earning capacity but not the hours you may have to work. Business owners, if they’ve structured everything correctly and the numbers are trending up, are not bound by this scenario.”

Drawing on her experience, Denise says there are five ways to exit a business – all equally valid but not always right.

There are the two get-out completely cards: “closing the doors and walking away, or taking the business to market to sell”.

And there are the strategies focussing on easing the business owner out. These include bringing internal capital on board, for example, an employee may wish to invest to become a partner.

Seeking external capital, for example bringing in an outsider, an investor of some sort, and the final option, according to Denise, a “revamp rebuild”.

“I am always donning my buyer’s goggles. If your whole business revolves around you and you’re telling me you no longer want to be there, then what is for sale? If it’s just the ‘furniture’, so to speak, then that doesn’t come anywhere near to making a whole.

“The end game is you need to make the business the asset someone wants to buy. A restructure or revamp of the business is needed to ready it for market. In my experience, once that is done many people have taken the step back, can see their asset working for them and decide to stay.”

It may seem counterintuitive to start with the end in mind, especially when you are in the start up and growth phase, where exits are not where your energies are focussed. However, Denise‘s experience has proved to her that knowing what that end looks like, even in general terms, supports and builds a more sustainable business.

“The last thing you want to be doing is selling a business when your numbers are trending down, but that is where I often see the process start,” says Denise.

Instead, counsels Denise, if you know what you’re building and understand why you’re building the business, you will have a context for what the business could look like at various life stages including at its end and be in a position to sell when the numbers are still good.

A ‘sellability score’, helping you tick off the boxes around what buyers look for in a business can be a very helpful tool and it’s one that Denise has accessed, for anyone to use. The take-home message for sellers: buyers buy profit not potential.

“The key point,” she says, “is the report you receive explaining the eight key attributes of ‘sellability’ and how your score compares to globally researched benchmarks. The report poses a whole raft of questions around what you could do to increase your score.”

The largest single issue she sees women-owned businesses facing is for business owners to ensure they have a genuine understanding about what they are building and why.

The key driver for women, she notes, is often around lifestyle choice and then they create the thing that fits into that.

“That’s where problems can start, because if you want to get out of the business and it revolves around a personal why then that’s very difficult for someone else to buy into.

“My advice: create something bigger than you. Have a story others understand and want to buy into. Buyers want a future. They have to see the need.”

The financial objectives of the business create another issue.

Is the business a second income and nothing more? Or, are you starting a business that is about providing the main income for the family. They are very different scenarios demanding very different exit strategies. It all comes back to knowing what you are building, and why.

(For more on the business lifecycle, see our Ruby articles Where is Your Business Succession Plan and Selling Your Business – Capital Gains Tax Considerations)