Getting the timing right when deciding to sell your business/practice can often be difficult. There are personal, financial and emotional decisions to be made as well as pertinent business decisions and plans to put in place. Experience certainly highlights that timing is everything. An early, planned departure is far better and more successful in terms of the overall satisfaction of the outcome than a forced, rushed exit.
Once the decision to sell is made, it is vital that you continue to run and operate the practice as though you were continuing on for the longer term. Given professional practices are often sold on the basis of maintainable income, a vendor can’t afford to stop making decisions that will enable them to maintain the status quo and continue to produce the revenue that they are stating as turnover. However, thoughts also need to be given to the length of the commitments being made.
Our years of selling practices have highlighted the worst of these decisions.
► STAFFING
This is a double edged sword in that you need the personnel to continue to complete the work so fee levels will be maintained, however most vendors want to avoid promising someone a job only to find they’re not retained by the purchaser following the transaction.
Some firms contemplating a sale refrain from replacing personnel around the time of selling as they feel this will eventually be someone else’s issue. This is true.
However, if it takes longer to achieve an outcome than expected or the firm has an influx of work, such events can actually threaten the future success of a transaction, so it simply becomes a necessity to employ additional personnel. As mentioned, most employers don’t wish to take on new hires under false pretences, but they’re often unable to enlighten them about what is going on. The upside could be that the purchaser may end up requiring the new employee and retain them post sale. The decision can be difficult, but it has to be ‘business as usual’ when it comes to this aspect.
► IT
This can be a difficult decision, particularly given the transition of many firms into the Cloud; so a couple of things to keep in mind.
Generally, most purchasers don’t really require the IT of a practice they are acquiring. Perhaps, on occasion a purchaser may want the firm’s server; however desktops are less desirable. That said, purchasers will be more attracted to an opportunity that has updated IT systems. Outdated or unusual hardware and software is seen as a negative.
Please, don’t rush out within a year or so of selling, update all of your IT systems and expect a future purchaser to pay you for it. It is highly unlikely that will happen and you will be left with unwanted capital expenditure or lease / hire purchase commitments. But, if your systems are running slow and the server dies; obviously it is going to need replacing. Again, do what is required to keep the firm running but without any substantial expenditure in the preceding couple of years of a sale.
► OTHER EQUIPMENT
I don’t know what it is about some businesses, whether they be professional firms or in other industries, some vendors rush out and spend significant sums of money on items that are of no interest to a prospective purchaser and then think they will be reimbursed for such sums.
NO, STOP! Things like new compactus, new signage, new desks or office fitouts; a purchaser won’t care how great you think these items are or how much you have spent on them. It is highly unlikely a purchaser will pay you for this expenditure; so it’s dead money.
►LEASES
The pending renewal of premises lease is a great time to sell a practice.
If you are contemplating a departure in the next year or so, please do not lock the firm into a three, five or ten year lease. Eight out of ten purchasers currently want to relocate any acquisition to their current premises. By committing to a long term lease, you will either find yourself with vacant premise or you limit the number of parties that will be genuine purchasers because they won’t wish to take over your lease.
Likewise, similar advice also applies to any other form of leases, hire purchase or rental agreements. Do not lock yourself into long term commitments.
►VENDOR HOLIDAYS
This one I find highly amusing.
As a vendor, you have decided to sell your practice. Perhaps the transaction is taking a little longer than expected or maybe a holiday had already been booked prior to commencing the sale process.
However, where not, I would recommend that you limit the number and duration of any planned holidays. It is very difficult to be in a crucial stage of the sale process and then have the vendor disappear overseas for 4 or 5 weeks.
This is highly likely to stall the sale process, and it’s got nothing to do with the purchaser, it’s all the vendor’s doing. Just think, once sold you will have all the time in the world for a lovely holiday, but in the meantime, let’s just stay focused on the task at hand.
