When should you give up on your business?

By Jack Preston

There comes a point in most entrepreneurs’ lives when they have to admit defeat...

The fact that 90% of start-ups fail tells us that there should be no shame when things don’t quite go according to plan, however that doesn’t make closing down or deciding to sell a business any easier. One man who has had to call time on his fair share of companies is Richard Branson, with the likes of Virgin Brides now consigned to the Virgin Group’s diverse history.

“When you put your heart and soul into your work, it can be very hard to let go. One of the most difficult moments of my career took place in the early '90s, after a couple of years during which British Airways had thrown all its resources into driving Virgin Atlantic out of business. We realized that if we were going to defend ourselves adequately, we were going to need a lot more money. Our only option was to sell Virgin Records, the label that we had used to launch some of the most influential artists of that generation, making our brand a household name,” writes the Virgin Founder in his entrepreneur.com blog.

That’s why, one day in 1992, I found myself running down Ladbroke Grove in London, crying my eyes out, despite the check for $1 billion in my pocket.

“I had loved creating and running Virgin Records - every bit of it. Gritting my teeth and signing the documents of sale wasn’t easy, but it needed to happen. If I had refused or delayed, the Virgin Group would probably be a shadow of the company it is today. That’s why, one day in 1992, I found myself running down Ladbroke Grove in London, crying my eyes out, despite the check for $1 billion in my pocket.”

Before reaching a point where you decide to kiss goodbye to the business you built up from the ground, there are a few checks an entrepreneur must take. Knowing when to let go is important, but prior to that you need to be able to tell yourself that you gave it your all.

“Before you throw in the towel, there are a number of questions you should ask yourself, no matter what industry you’re in - whether it’s selling popcorn or Porsches. Have you done your market research and discovered what your customers are looking for? Have you offered them something that’s not already out there? And perhaps most important, is your business making a difference for them?

If you’re satisfied that your product, branding, marketing and customer service are all spot-on, then think carefully about how and when your potential customers buy the product you’re offering. If possible, you want your shop or your product to be at hand exactly when people find themselves in need of what you’re selling,” explains Branson.

“If you’re not yet making a difference in your customers’ lives, consider helping your community in a way that’s integral to your business. If you don’t know where to start, try leveraging the power of social media. It might seem a little disheartening to start from a small base of followers, but if you give this the attention it deserves, that can quickly change - interactions with potential customers are gold dust. Use them to discover your company’s unique voice and find out what people are looking for. Tell everyone what you’re all about, so that by the time they come to your shop they already know what’s on offer.”

Have you had to sell or close a business? If so, why not share your experiences below, including any tips or checks which an entrepreneur should make when assessing the health of their company.

How to make your business more attractive for sale

JACOLINE LOEWEN

The Globe and Mail

Published Tuesday, Jun. 25 2013, 5:00 AM EDT
Last updated Monday, Jun. 24 2013, 2:44 PM EDT

The dismal financial results for 2009 no longer need to be included in a company’s books. For any business looking to sell, this significant milestone allows for a marked improvement when potential buyers look at the performance of the past three years. The conversation doesn’t have to start with: “We looked at your financial statements. What happened in ’09? Want to talk about that first?”

That said, there is still a noticeable gap in valuation expectations between buyers and sellers. “The market downturn stripped out the profits for private companies and the survivors reduced and reinvented their businesses to add to their top line,” says Bob Gorrie, owner of Gorrie Marketing Services. “These owners have put a great deal of sweat equity into their businesses, and unfortunately that extra hard work and planning is not reflected in their financial results.”

But as the markets improve, profits are returning and owners interested in selling are watching their industry cycles like hawks for the upswing, waiting to get the timing right. A more relevant question for these owners is “where is my own business in its life cycle?”

For any business owner contemplating a sale in the next few years, here are a few ways to add to the valuation:

Does your business have solid management?
The owner may be leaving but buyers want to know whether there’s a team in place with big goals to drive the business forward with equal determination. Having a succession plan is critical, but when Crosbie & Co. recently conducted an owners’ survey, it revealed that fewer than 5 per cent have a written document with a strong operator or family member ready to take over. Owner-operators have built their lives around running their businesses and they do not want to let that go. This reluctance may prevent them from seeing the importance of planning for their own exit and they will get dinged on their company sale price for this omission.

Are your key processes institutionalized?
“There is the risk that the company incurs a fatal loss of knowledge and connections upon the exit of the owner,” the president of a manufacturing business told me. “The earn-out helps, but two to three years does not make up for 30 years experience in a company. One way to mitigate this risk is to bring in a guy like me.” Paying a high-quality CEO for a few years will help the owner of a windows manufacturer convert “in the head” knowledge to written processes. “We preserved the knowledge and demonstrated the existence of a reliable management team to a potential buyer,” the president added.

Do you know good buyers?
The sale price of a business is what buyers offer and when a company is in the growth part of its business cycle, there will be multiple offers and phone calls from all sorts of interested parties. “I know the ‘I’m comfortable with my business’ owners where the offers to buy have made great sense,” says succession planning coach Janice Lahiti. “The owners don’t do it because they think their ability to influence a variety of broader agendas will diminish.” As the business hits the mature stage of its life cycle, which often occurs in tandem with the owner’s life cycle, suddenly the pool of multiple bidders dries up and as Janice says: “The owner can no longer command the multiples they want.”

The owner may also miss the opportunity to sell to a buyer who will structure the sale so that the majority of the company is purchased but the owner can keep 20 per cent to 30 per cent with a fixed medium-term buyout schedule. They can also have limited management or board involvement. This structure keeps the owner involved mentally and financially in his or her ‘baby’ while taking some money off the table to free up time to pursue other interests.

What is your opportunity cost, really?
Melanie Kau exited her successful family business, Mobilia, to take on the challenge of running Le Naturiste. “The ‘what next’ after you have worked for 15 to 20 years in a business prevents people from asking themselves the cost of staying where they are because they are comfortable. I know what that feels like because I have just been through it. Therein lies a great deal of value with the experience the entrepreneur has built up: sometimes the business is more like a cage than a platform.”

Jacoline Loewen is a director at Crosbie, which focuses on succession advice for family businesses and closely held small to medium-sized enterprises. Crosbie develops customized strategies, particularly in relation to M&A, financing and corporate strategy matters. Ms. Loewen is also the author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.