A business cycle takes many forms, especially in the growth stage which sees many changes come into effect. Some things that happen include altering policies and procedures, negotiating new relationships, scrapping departments or initiating new ones, enhancing skill levels - all of which puts corporate culture to the test.
As a result of the delicate corporate culture you’ll find a variation in leadership philosophy, employee interactions and the tone of the company's customer engagement. This can destabilize the business environment, and calls for many stakeholders to adapt to the changing environment.
It’s not always a walk in the park, even for those companies that might look prepared for a change - and culture change, for that matter.
Disney, for instance, employed an aggressive acquisition and expansion strategy when Michael Eisner took the helm. During that period, many properties were purchased, which saw the production of golden era movies. But these successes were not without a hitch. Many were not comfortable with the changes, and at times the future looked bleak. Disney was able to stand the test and today continues to grow in leaps and bounds, especially after Bob Iger returned it to its cultural roots.
Transitions can be disastrous if not well managed. It’s not usual to find all parties share the same vision for the future, including the most positive and innovative. There must be a way for companies to avoid derailing the benefits of new opportunities, while still keeping to its cultural roots.
Here are 5 steps to selling your business without sacrificing its soul.
1. Take a Holistic View of the Deal
You need to know the deal at hand, in and out. You can then proceed with the confidence of knowing how your company operates, what its cultural landscape is like and what its value proposition is. You need to have these at your fingertips so that you can put all necessary facts on the table when negotiating. Interview the buying company to know how well it understands your business, and what it hopes to gain from the deal. The distinguishing factor for your business lies in its culture, the one you and your team have built with sweat and tears. It would not be fair to hand over many years of hard work to someone who does not appreciate or understand where your business is coming from, and where it's going.
Big offers might be tempting, Mark Zuckerberg was once offered a billion dollars by Yahoo to sell them Facebook, but could not take it because he understood how his brainchild differs from Yahoo's business model. Yahoo would probably not have taken Facebook to the great height where it now stands.
Facebook is an obvious example of the benefits of the company’s owners understanding their business’s value proposition, and refusing to be swayed by lucrative offers. It sets a good example for other businesses to follow when big offers come to the table. When your company is in the hands of someone who shares your culture and understands your business model well, growth will continue years after acquisition.
2. Keep Employees in The Loop
Who doesn't fear change? Even company owners fear change, so it’s worrying for the employees, and some prefer to call it a day when change looms. But if you involve the employees and keep them well versed with what is happening, it can be an easy experience. They will adapt, and be the most reliable instruments of change. Your employees are part of the organization's culture and are the ones to see it transfer to the new system, so let them know how the new developments will affect their positions, remuneration and what is expected of them.
In 2002 Hewlett Packard acquired Compaq. One of Compaq’s managers kept asking for weekly reports from Hewlett employees, just as it used to happen at Compaq. This was not received well by HP employees who saw it as micromanagement. Though this manager’s intentions were meant to enhance communication, the reason for the rejection was as a result of transition breakdown. Employees at HP would have been engaged if they understood Compaq’s management style.
Apart from keeping communication going, you need to let the transition be gradual. Let things flow as naturally as possible, until everybody is immersed in the new structure.
3. It’s Worth Sticking around for a While
Stick around a while. You are needed here, especially by your employees. You inspire confidence in them during the transition period. Be around even if you don’t intend to be there for long.
The early stage of the transition period demand your presence, so you can oversee vision and culture development.
Randall Stephenson, the CEO of AT and T, says he will continue as chief executive after his company acquires Time Warner later this year. This is a good move, as it means he’ll be there to manage and oversee an effective transition.
Acquisitions play a significant role regarding the achievement of desired growth levels, and the ability to cover wider markets, but an organization’s culture is what keeps your brand distinguishable from the rest. You must put all the necessary steps in place to safeguard this culture for your vision to continue years after new changes come into effect.
4. Know the Perfect Time
Timing is of the essence. Is it the right time, or is it the perfect time, should be yours to answer. Do it at the perfect time. There’s no single formula to determine accurate timing, but just like in trade, there is also a good season to buy or sell a business.
Don’t sell your business if:
Burnout and personal lows happen to almost every entrepreneur. Avoid entering into negotiations during these periods because you lack the energy to negotiate a fair price. Chances are you’ll end up regretting the sale if you negotiate it during these moments.
During times of misfortune or catastrophes, you’ll find many clamoring to buy distressed companies. You’ll end up selling your investment at a throwaway price if you fall prey to fear.
Sometimes you might be tempted to sell when you are in need of cash. Those offering such lump sums of cash for your business will always demand a cash discount which will see you sell below its true value.
On the flip side, sell when:
It's time for a lifestyle change, you are retiring, you want to spend more time with your family, or want to move abroad and it won’t be possible to manage the business in absentia.
There’s a top-notch management team in place in your business. When the best brains in the industry hold managerial positions in your company, buyers will pay more. The management capabilities determine the selling price.
When on an upward trajectory, it is the best time to sell. If you are enjoying a constant period of reporting profitability you can sell your business at a premium.
The country’s economy is healthy. You can tell how the economy is fairing by looking at the stock market. Usually, the interest rates are low, meaning a strong economy and best time to sell the business.
The company continues to register satisfactory progress even though the industry is performing poorly.
5. Know Your Business Value.
Let’s emphasize this point more because it’s a weighty issue. Never go into selling your business if you don’t know how much the company is worth.
Armed with the understanding of what the buyers are looking for, assess your business values in one of the following ways;
This is a simple assessment of the NPV (net present value) of the company's income stream. It might be a bit technical, but easy to learn if interested. You can find out how to calculate NPV here.
Here you simply add up all your business assets, less your business liabilities, and what remains is your business asset valuation.
For this method, you analyze other similar companies in the industry to know their worth and selling price, and you peg your business to that.
You can use any of these methods or use all of them. Knowing your business value is a starting point on the road to selling up. It gives you the confidence to start a conversation with a prospective buyer.
Sometimes, selling your company will require the help of a consultant or expert to help you strike the best deal. But your knowledge and preparedness is a vital ingredient that can determine the success or failure of the whole process. Remember, you can always get a freelance financial consultant who can help you through the process.
So if your business growth is directing you towards mergers and acquisitions, you know where to begin.
At what point should an entrepreneur contemplate selling their business? We would love to hear your thoughts in the comments section below.