Everybody’s Free to Wear Sunscreen
Some of you may recall “Everybody’s Free to Wear Sunscreen“, the brilliant song by Baz Luhrmann. The line “sometimes you’re ahead, sometimes you’re behind…” seems particularly apt in these crazy times, it’s also relevant for anyone selling their business – in that timing is important but so is what you do afterwards. In this article we examine selling out, not the technical ‘how’ but the journey and timing and what happens after the deal. Rather than dry advice, we have mirrored the song words just to “mix it up” – so if you google the song before you read this, you’ll better understand my advice, which is based on my own meandering experience – 30 years plus in M&A.
Ladies and gentlemen of the class of ’99
You are never too old or young to sell
It’s all about what’s right for you
But when you’re at the school reunion
Make sure that it’s the work or the selling out that keeps you young
If I could offer you only one tip for the future, sunscreen would be it
The long-term benefits of sunscreen have been proved by scientists
When people do sell up and move to Spain
Most make a year or two before the gin and tonic creeps in a little too often
and the golf becomes too long and hot
Sunscreen is our purpose, something we need to drive our lives
Selling your business is a step to achieve your purpose
And this may not be and rarely is, just a life of retirement and leisure.
Whereas the rest of my advice has no basis more reliable
Then my own meandering experience, I will dispense this advice now
Use advisors with a track record, that know how to do deals
They have the experience to understand your journey and goals
And if you like Baz Luhrmann that helps too!
Enjoy the power and beauty of your youth, oh, never mind
You will not understand the power and beauty of your youth
Don’t spend your whole working life thinking about shareholder value
Yes, you do need to consider your future selling-out strategy
But remember Jeff Bezos’ 1999 podcast on putting the customer first
This is at the heart of creating a valuable company and giving you the choice to sell.
Until they’ve faded, but trust me, in 20 years, you’ll look back
At photos of yourself and recall them in a way you can grasp now
How many possibilities lay before you and how fabulous you really looked
No matter how stressed or easy work was
If you sell you may miss no longer being the big fish in the pond
But will become a small fish with, hopefully, a big wallet.
You are not as fat as you imagine
Work can be all engaging and a sale process can sometimes feel like heart surgery
So, stay fit and your recovery time will be much faster.
Don’t worry about the future
Or worry, but know that worrying
Is as effective as trying to solve an algebra equation by chewing bubble gum
Maybe it will be a trade sale, an employee ownership trust deal, or a private equity investment
Timing and the experience of your advisors will help you decide
Your job, as a leader, is to ensure you have the choice
By creating a valuable company that is sale ready at any time
If you favour a trade sale, research is critical to identify suitable parties
And create a market with multiple offers (an auction will drive the price)
Second guessing who the most strategic buyer is for your company is like algebra – very tricky and mostly irrelevant
In the end, the market decides.
The real troubles in your life
Are apt to be things that never crossed your worried mind
The kind that blindsides you at 4 p.m. on some idle Tuesday
Being blindsided in deals does happen – but typically on a Friday
Most often driven by lawyers or tax specialists
When they have identified a change of control clause on a contract
Or a query on your VAT status
Stay calm as a solution can be found
And your team will be there to fix it – even into the small hours.
Do one thing every day that scares you
You have a valuable company so work out your net proceeds and how much you need
And how big the Inheritance Tax liability will be
Then consider what would it be like to be unemployed or initially unemployable
But with time and financial freedom?
Saying, don’t be reckless with other people’s hearts
Don’t put up with people who are reckless with yours
Your team has helped you get there
You want the selling out to work for them – if possible
But this is not guaranteed, and they can’t dictate the right time or method
You took the risks of starting and building the business and this is your choice.
Don’t waste your time on jealousy
Sometimes you’re ahead, sometimes you’re behind
The race is long and in the end, it’s only with yourself
There is always someone richer than you
But these days it’s more likely to be stealth wealth
Don’t let other peoples’ interpretation of success dictate your perspective on whether you have succeeded
Aristotle said, “being wealthy consists in using things rather than in possessing them, for it is the activity and use of
such things that makeup wealth”.
Remember compliments you receive, forget the insults
Someone will always burst the bubble of your success
And the tax man is one of these when it comes to a business sale
10% on the first million in the UK, but 20% after that per executive shareholder
And this may likely increase.
But selling out to the employees via a trust is currently 0% – so worth consideration.
If you succeed in doing this, tell me how
Keep your old love letters, throw away your old bank statements
Don’t feel guilty if you don’t know what you want to do with your life
The most interesting people I know
Didn’t know at 22 what they wanted to do with their lives
A business sale is a leap of faith
One vendor became a Jaguar car salesperson – he loved cars but didn’t want to risk another start-up
Others retire and focus on new hobbies
One seller learned to play the piano and cello – others are serial entrepreneurs
But be warned – don’t apply old formulas to new sectors and assume you will win
Markets shift and only a third of start-ups make it past 3 years
Entrepreneurs can sink millions thinking they have the magic touch
But the market may be beyond the new idea.
Some of the most interesting 40-year-olds I know still don’t
You will feel a bit lost – this is called ‘seller grief’
One day hundreds of emails – the next day none
Don’t worry about it as eventually, the next phase comes – it always does
The leap of faith takes time, and your new life will almost certainly be entirely different from what you imagined
Know who you are and have faith – stuff happens and will come up.
Get plenty of calcium
Recurring revenue is the number one driver of a higher value.
Be kind to your knees
You’ll miss them when they’re gone
Look after your finance team
You need them to help get the deal across the line.
Maybe you’ll marry, maybe you won’t
Maybe you’ll marry, maybe you won’t
Maybe you’ll divorce at 40, maybe you’ll dance the ‘Funky Chicken’
If your selling out is a merger or an earn-out do your due diligence on culture
70% of deals fail to meet CEO expectations mainly due to cultural clashes
The merger might work, or you may feel you need to leave
Get a pre-nuptial (metaphorically)
This means make sure you get the very best seller protections you can
On any retained shares or earn out.
On your 75th wedding anniversary
Whatever you do, don’t congratulate yourself too much
Or berate yourself either
Your choices are half chance, and so are everybody else’s
Enjoy your body, use it every way you can
Don’t be afraid of it or what other people think of it
It’s the greatest instrument you’ll ever own
We hope a sale brings you wealth
But it is always health before wealth so eat and drink carefully and exercise well
Shares in a private limited company are inheritance tax (IHT) free
A sale will create capital in your estate so you may want to do some planning
Offshore discretionary investment bonds are great for IHT planning
As you can allocate some shares to your beneficiaries
And take up to 5% a year in income whilst the money stays in your control.
Dance, even if you have nowhere to do it but your own living room
A sale and running a business is a journey
The selling out is simply another phase
The successful outcome is not just financial but when you are engaged happily in what comes next
Celebrate the success as entrepreneurs and shareholders
You can dance to your own tune
Many don’t – so whatever the stress – remember you have a choice of how you handle it.
Read the directions even if you don’t follow them
Seek out and listen to advice
You don’t have to take it, but the advice is to research
And informed minds work better when deciding how, why, and when to exit
In the end, the business is a tool for making money
Work is a means to an end
And failing that you can choose to go with your boots on
Of course, you may be emotionally attached to your business, and this needs to be recognised
You may also run a process, agree on a deal and then pull out if it doesn’t feel right
Until it’s proven and the terms are right it’s not a decision to exit
But rather to explore it further to understand why the purchaser is buying.
Do not read beauty magazines, they will only make you feel ugly
We will contradict this
Do read beauty magazines
What is the checklist of things that need to be sorted in your business pre-sale?
Know your ugly spots and do something about them pre exit
Carry out a vendor assist audit (pre-due diligence) to check that you are sale ready.
Get to know your parents, you never know when they’ll be gone for good
Be nice to your siblings, they’re your best link to your past
And the people most likely to stick with you in the future
Understand that friends come and go
But a precious few, who should hold on
Work hard to bridge the gaps in geography and lifestyles
For the older you get
The more you need the people you knew when you were young
Building a business for sale is a highly valuable journey
You will gain many great contacts from advisors to loyal team members
Be grateful and find ways to stay in touch
Many allow a sale to be dictated by when it suits them personally
But successfully selling out is often driven by when it is right for the company
And the personal journey of what happens next falls into place over time
You may also consider a sale to your team via an MBO or an employee ownership trust
An EOT provides great rewards for your team at 0% tax for you
Today’s business is not who you are – it’s an investment, and age plays a role in the “when”. The older you get the more valuable time not working becomes.
Live in New York City once but leave before it makes you hard
Live in northern California once but leave before it makes you soft
Many choose to travel after a sale
This is viewed as the ultimate reward – but it’s remarkable how many “come home”
Home is where the people you love most are
Don’t be disappointed if travel is just a phase
Enlightenment after selling out may be simply learning to be you
And if you do retire, the trick may be to learn to be inefficient.
Accept certain inalienable truths
Prices will rise, politicians will philander, you too will get old
And when you do, you’ll fantasize that when you were young
Prices were reasonable, politicians were noble
Prices are reasonable, we want to buy low and sell high
If you can’t create shareholder alignment
A company buyback may be a way to buy out shareholders
No matter how many offers you receive
The auction will decide the price based on a willing seller
And on the day of completion, you may feel you are selling short
This is perfectly natural
If you sell something you sold cheap and if you bought something you paid too much!
But selling too early is always better than selling too late.
And children respected their elders
Respect your elders
Selling a business for wealth, both financial and personal deserves respect
You are a proven entrepreneur and elder statesman
But these are crazy times, and you may be viewed as just another capitalist that played the system
You know the risks you took
You remember the hard graft and those almost overstretching moments
Never let society take that away
Make notes on your journey and don’t feel guilty about any wealth created
Remember how hard it was as this may remind you that repeating it is not a slam-dunk thing
Many believe they can be business angels or create new start-ups very quickly
But our research shows that the sellers who preserve their wealth
Are those that get good financial advice and focus on property investments or a combination
Private equity can also be a proven formula to create a yield
Don’t expect anyone else to support you
Maybe you have a trust fund, maybe you’ll have a wealthy spouse
But you never know when either one might run out
This is your game – building a successful business takes care
And selling it even more, whatever your chosen exit strategy
If you have multiple shareholders, creating alignment for selling out takes time and patience The CEO leader drives this by articulating business cycles
Being impartial and examining the risk profiles of the shareholders and the board
In terms of ‘running out’ shares in a private company are illiquid and very high risk
Capital spread on stock markets, multiple companies, and property, as well as cash, is low risk.
Don’t mess too much with your hair
Or by the time you’re 40, it will look 85
Be clear on your strategy, where you can stand out and make the margin
Many businesses try to do too many things that are not strategically important
And end up not having the time to do the right things well
This distraction undermines them
In truth, running a business is simple
Identify a profitable niche, differentiate yourself in a way customers respect
Put the customer first then profits and shareholder value should follow
The rest is all lumber – so throw it overboard or stop messing with it.
Be careful whose advice you buy but be patient with those who supply it
Advice is a form of nostalgia, dispensing it is a way of fishing the past
From the disposal, wiping it off, painting over the ugly parts
And recycling it for more than it’s worth
A good exit advisor is worth every penny
Yes, we do recycle advice, but it is old wisdom borne from years of experience
Navigating the technicalities whilst your sale is delivered with minimum hassle and distraction
The process is designed to test you as buyer and seller wrangle on price and risk allocation to the last
Don’t try and manage a process yourself whilst running a business
It will distract you and potentially damage the business value
Hold your advisor to the completion dinner – it pays to celebrate!
But trust me on the sunscreen
Wear sunscreen on many walks
The decision on selling out should be taken in the wilderness
When is enough? When is enough financial independence achieved and what to do next (existentially)?
These are the profound questions that are always better answered
Standing by a river or by the sea
Outside with sunscreen on
Our experience from our many sellers is that it’s always a leap of faith
But ultimately a decision that few regret
Just don’t forget the sunscreen!
Contact Avondale Corporate
If you are looking to create a more valuable company or looking for advice on pre-sale preparation, we can help you better understand your value drivers and “scale-up” options pre-sale or earlier. For an exploratory discussion without obligation, please contact us at +44 (0)1737 240888, our Contact Us page, or email firstname.lastname@example.org and together we can examine your opportunities.