So you’ve decided you want out !
Many of my clients and other people I speak to in the home improvement sector are planning how they are going to exit their business.
Whether it’s in one year or thirty years, everyone seems to have their eye on the door.
But what is the best way to do this?
In reality, you have three options.
1 - Close The Doors
2 - Management Buy Out
3 - Sell The Business
Closing The Doors
If your business has been such a huge success that you can simply afford to just close the doors and retire, or move on to the next project, then for me, this is by far the most pain-free way of getting out.
Many businesses have decided to do it this way, unfortunately many go down this route due to debt, bad luck or bad decisions, but many have earned their money and simply just walk away.
Management Buy Out
The second option is the management buy out. This has been done successfully in many businesses, but it also comes with its own challenges.
There is always an issue when the founders are no longer in the business though.
Nobody cares as much as the people who set it up.
When you look at successful businesses like Amazon, Virgin, Facebook, Google and Apple, they are all one man's dream.
Jeff Bezos, Richard Branson, Mark Zuckerberg, Bill Gates and Steve Jobs were the driving forces behind these businesses from the start, and they are still very much involved now. (Or recently in the case of Steve Jobs).
Elon Musk is another prime example.
When you look at the successes in the kitchen industry, you look at Howdens and Wren.
Again, Howdens was the brainchild of Matthew Ingle, and Wren for Malcolm Healy.
One person's dream, who was there at the start and went through the highs and lows.
Once you start getting into businesses where the founders are no longer involved, you find people haven’t quite got the same passion for the business.
They didn’t have the sleepless nights, the long days and the sacrifices that everybody else went through.
This is why many of the sheds struggle, because they don’t hire the right people.
I see Managing Directors move from company to company to company. People who Tesco wouldn’t even give a loyalty card to !
For them it is purely financial, they haven’t got the emotional investment.
So if you are looking for a management buy out, especially if you are still having a stake in the business going forward, you need people that care.
A strong and capable team is also a vital and integral part of this too.
If your long term plan is for the current employees to take over, you need to start investing in them as early as possible so that they are ready and able when the time comes to take over the reins.
A clear plan and seamless transition is a key ingredient to the process, and communication to everyone is essential.
You may have fantastic salespeople, top class designers, amazing cabinet makers, but they also need to be great business people.
And if they aren’t already at that point, you need to start the ball rolling on their development now.
Selling The Business
Everybody thinks that this is the option they will go down when they are first imagining getting out.
“We’ll sell up and move to Spain!” is the dream of many. (Including me !)
But what is your business actually worth ?
A lot of kitchen design businesses actually lose value when the main driving force leaves the business.
If you have built up a successful brand, and your name is above the door, then that loses a lot of value when you are no longer involved in the business, as explained above.
And a lot of people are well known within the KBB community, but that doesn’t always transition to the buying public.
Also, what value do you put on goodwill?
If you are a trade kitchen business where one customer is buying ten kitchens a year from you, this is a valuable asset and would count a lot towards a goodwill value.
In retail kitchens, a customer is buying one kitchen every ten years, so really, you don’t have a lot to place a decent value on.
You may have great relationships with architects, interior designers and builders, but unless they are going to continue to buy from the new owners, then the relationship dies with the sale of the business.
Unless deposits have been left and the order book is full, there is a gamble for the new owner.
Displays are usually another asset to put a value on, but will the new owners want to use the same suppliers you have been using, or will they be ripping out your showroom and putting in their own products.
And what is the actual value of your current displays, and how much are they worth to an investor?
The real question somebody will be asking themselves when they are deciding whether to buy your business is …
“Is it cheaper to buy this business, than to start my own up from scratch in the same area?”
A lot of people have exiting the industry very successfully, and are now reaping the benefits of this, but it takes time, planning and execution.
If you need help with any of the points I have raised here, then please get in touch. I can help you get into the best position possible to exit the business in any of the three ways discussed.
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