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How Strong is Your Second in Charge (2IC)?
As much as you may love what you do, you also have to get away and recharge. And one day, you will want to walk away once and for all. The question is, if it’s difficult for you to leave the business for a few days’ vacation with your family, how easy will it be for you to sell your business?
The truth is: Your business won’t sell unless it is ready to sell, and it won’t be ready to sell if a prospective buyer does not see a strong management team. Do you have a strong partner or manager whom you can trust to run the business when you’re not around?
Our guest, Mark Oxenham, a business coach providing advice on exit planning and business sales, explains exactly how having a reliable Second in Charge could lift the value of your business.
Questions Answered For You
- What might prevent a business owner from coming up with a workable exit strategy for themselves?
- What are the first few important steps that a business owner can take once they've decided to pursue the sale of their business?
- What are some things that business owners are reluctant to do that could get in the way of selling their company successfully?
- What are the steps that a business owner needs to take in order to start to put exit plans together?
A lot of owners are bottlenecks. Everything has got to go through them and they can't delegate. Buyers seek a smooth transformation without an ex-founder or an ex-owner that would inhibit the growth. So, it's really important that you're not the bottleneck.
Key Takeaways To Remember
- Business owners need to have management strategies in place so that their key employees can be delegated to and can take over the reins of control when a new owner comes in to buy the business.
- In today's market, prospective buyers are looking at the social media side of the business and want to know that it’s being managed properly and is up-to-date.
- If exit planning isn't done correctly, the owner won’t get as much money for the business as they would like. So, to do it properly and effectively, you need to bring in a specialist.
- It’s important to concentrate on running the business and keeping it profitable during a sale so that its value is not reduced.
From our studio in Southern California, with guest experts from across the country and around the world, this is "Deal Talk," brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Jeff: Hello, and welcome to the web's number one content source for small business owners committed to building a business for eventual sale. Here on "Deal Talk," it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
Seriously, think about it. My set-up just a minute ago, I talked about business owners who don't take vacations, and we all know them. We've all met one or two in our lives, and we might even be one of those individuals ourselves. Are you one of those people who don't take a vacation? Why not? Well, chances are it's because you can't trust anyone other than yourself to run your business. And that's why you don't break away.
But did you know that that could actually be causing a problem with respect to the value of your company? That's right. The value of your company may be taking a direct hit as a result of your not being able to get away, or that mindset that you think you can't get away.
Here to join us to talk all about it and why it's important for you to have an exit plan in place, and yes, it's all related, is Mr. Mark Oxenham, Principal at KLO Partners in London. Mark, I appreciate you joining us today on "Deal Talk." Thank you so much for setting aside some time.
Mark: You're very welcome.
The first thing they have to admit is that they're not the expert at selling their business, and they really do need to get a specialist involved. I've said it before, it's the old story. You do need to let specialists help you, because they will benefit you and benefit the final price you get.
Jeff: Let's just go ahead and hear a little bit about your background, if you could kind of share where you've been, what you're currently doing now with KLO.
Mark: Originally I trained in hospitality. And I worked in Bermuda, in the Bahamas. And then in Canada in five star hotels and resorts. But I always wanted to run my own restaurant, so I got out of the hotel business and got into the restaurant business.
I ran two successful restaurants, but restaurants don't mix necessarily with young families, so I decided to get out of that restaurant business. I sold my restaurants and became the GM of a private gentleman's club in Canada. I was successful there and was headhunted out into the U.K. to set up part of the major Canary Wharf development, which is in East London.
And after that I was encouraged to join an American business since I set up the U.K. division of an American leisure company, open three large health clubs. And then we sold that into another business. And then I grew that business to 16 units nationally in the U.K.
But after nine years of corporate slog, as it were, I sold out my interest, and since 2005 I've been advising small- to medium-sized business, and in buying and selling businesses along the way.
Jeff: Of course, Mark, another thing that you do is you're the owner of your own privately held business, Oxenham Associates Limited. And you have really spent the last many years of your career really working in helping business owners to do one very important thing, and that is planning their exit.
So many businesses today just simply disappear. They just vanish into thin air. Once their leader has left the business, the doors close and it just shuts down. The business owners are not taking full advantage of all those years of hard work, blood, sweat, tears and all the effort they put in to creating a successful business. They're not taking advantage of the rewards at the end of the day.
What are the one or two things that prevent a business owner from coming up with a workable exit strategy for themselves?
Mark: I think it's understanding of the process and what happens. They don't have the experience to do it themselves. They've got lots of limits on their time, shall we say, they're very much involved in running their business.
How do they do it? They don't know how to get it... They'll know somebody that's sold their business successfully, but they don't always take the right advice. And they'll speak to their accountant who may be able to help. But accountants, not wishing to denigrate accountants, of course, but they tend to know the way but they can't necessarily drive the car. So a business owner really does need to have a specialist who knows what they're doing to work with them on their exit plan.
Jeff: How much of this is really getting over that emotional hurdle? We've heard so many times, and I speak from experience, I'm very emotionally attached to my business. It's part of me. I think about it all the time. I think about it at night. I'll wake up from a sound sleep and maybe I'll have trouble getting back to sleep because I'm thinking about these things that I have to do or I'm thinking about a special client that I want to put together a proposal for, something like that.
In any case, how can a business owner or business owners shed that emotional overcoat to allow them to kind of move forward to seeking that help that they need from a trusted adviser to help them get in that mode of planning their exit?
Mark: There are different people who have different attitudes toward their business. Some are very, very involved with their employees. It's like a family, and those I just find it more difficult. Because as you said, they've been very emotionally involved, the blood, the sweat, the tears, the frustration, the euphoria.
They've experienced it all and they want to get out but they really want their employees to be taken care of. And my discussions with owners like that are to talk to them about visualizing how the future will look without the responsibility of their business. But also working with a specialist to plan their exit to include and involved their employees in the process as much as they can, given the constraints and confidentiality in transactions.
Jeff: Mark, how much of a business owner's decision to not move ahead, or their rather unconscious avoidance of planning their exit has something to do with the fact that there is nobody on board, a good, trustworthy second-in-command, someone that they can trust to move forward, to even allow them to take a vacation, who can run that business and understands it as well as they do?
Mark: Most small business owners unfortunately don't delegate nearly as much as they can and should. They sometimes have key employees, they sometimes don't. Lots of successful business owners have got major control of their business and that one of the bigger issues in selling a business is that in the exit planning they need to have management strategies in place so that their key employees can be delegated to and can take the mantle of responsibility from the owner so that when a purchase comes in to buy the business, they are buying a management team who know what they're doing and they're not reliant upon buying a business where the employees don't know what to do at the top end.
And that's a real critical point, being able to manage a business with your key employees and not do everything yourself. The old adage is working on the business, not in the business all the time.
Jeff: Mark Oxenham is Principal at KLO Partners in London. He joins us today on "Deal Talk." My name is Jeff Allen, and we appreciate you for joining us today.
Mark, I guess the question is I'm a business owner. I love my team. I love my staff. I love my job. And what I do I enjoy going to work and I've been doing this for 10 or 11 years. I'm bringing my value to my clients, my customers. Business is good, but I still haven't taken that vacation in many years. We just kind of touched on that a little bit.
I've got some really good people. I've got some great managers below me. But how do I go about beginning to open up a little bit and trust that one person that I know I've got on my team who has a lot of tremendous potential? They know everything that I do. How can I begin to open up and begin to trust that person a little bit more so that I can step away? Is there any kind of formula to follow there?
Mark: It's the old aspect of trust. If you know and trust this employee and you want them to be successful, you will have put in a process, or if you haven't, you should put in a process of employee reviews and appraisals. And have their goals align with your business goals and bring them along that way. Business owners do not necessarily like to give up their hands on the wheel. They like to do it themselves.
When a business is being sold, if the purchaser cannot basically tick the boxes when they buy, it's very difficult. Let me explain that. When a purchaser buys a business, they want to be able to tick a box in every area. They want to be able to tick the box that the taxes have been paid, that the sales are good and they're going up, that the margins are good, that the employees are happy and motivated, that everything in the business looks good, almost its curb appeal.
So when I take a perspective purchaser into a business, they've seen the numbers and they looked at it and they take them in, it looks really well-thought-out, well-organized, it's neat, it's clean, it's tidy, the systems work, the processes work, the people smile. Big thing, that smile. The sales are good and growing, the profits are growing, that is what a purchaser will look at.
If they come into a business where the owner is doing everything, they think, "Hang on, I can't tick that box because where's the management team?" And when I buy this business and our friend Joe here goes off to sale in his yacht, how's the business going to be managed?
And importantly, when you buy a business, the last thing you want is the revenues, the sales, and the profits to fall. You want them to stay the same and grow. So in order to have that happen, you must have processes and systems working.
Jeff: And that's what you call curb appeal. It's the same kind of thing when you approach a home that' you're very interested in buying. It's the same kind of thing in a business, maybe a little bit more involved, but it's everything in its place. And not just the numbers, but the people also there and the strategies and processes behind the scenes that put the shine on the place. It really does interest those interested buyers.
Mark: What I would say in addition to that, what I look at in KLO partners, we always look at is what are the premium value drivers for a business. What is the revenue picture look like? It's going up. Are the skills there? Are the systems and processes good and operating well? The products and the services are great. The brand is positioned correctly.
If I want to grow it I can scale it up this effective sales and marketing processes, and the intellectual properties all sorted out. They've got all the patents done properly. They've got depth of management, great quality service, all things like this which add to the value of the business. And when people look at the business and say, "Wow, this is really well run."
And as you know, Jeff, in today's market people are looking at the social media side of it. Do they manage their Twitter feeds properly? Do they do their Facebook properly? Are their websites absolutely up-to-date, really working well? But simple stuff like, "How's the phone answered when I call the business?" It's all those things that add to the value.
Jeff: Are these the types of things, Mark, that you would advise your customers, your clients that is who come to you for your consultation to begin working on, to begin taking the steps regardless of how soon from now or how long from now they plan on selling their business?
Mark: Selling a business is not an event, it's a process. And if the exit planning is done properly, some businesses, it might take two months, three months, some businesses may take two or three years to get it in the right position for sale. Because if exit planning isn't done correctly and isn't done properly, what happens? The owner doesn't get as much money for the business as they would like -- pure and simple. So to do it properly and to do it effectively, you need to bring in a specialist to help you do that.
Jeff: Very, very good. That's Mark Oxenham. He's a Principal at KLO Partners in London. We're going to continue our conversation with him in just a moment. Mark, what I'd like to do is when we come back from the break, I'd like to talk to you about maybe those first few important steps that a business owner can take once they've decided to seriously pursue the sale of his or her business, what are those first few steps that they need to take?
My name is Jeff Allen you're listening to "Deal Talk," and I'll be back with Mark Oxenham right after this.
If you'd like to share your knowledge and expertise on any subject related to selling businesses or helping business owners improve the value of their companies, we'd like to talk with you about joining us as a guest on the future edition of Deal Talk. Interested? Contact our host Jeff Allen directly. Just send a brief email with "I'd like to be a guest" in the subject line. In a brief message include your name, title, area of specialty, and contact information, and send it to email@example.com, that's firstname.lastname@example.org.
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When a purchaser buys a business, they want to be able to tick a box in every area. They want to be able to tick the box that the taxes have been paid, that the sales are good and they're going up, that the margins are good, that the employees are happy and motivated, that everything in the business looks good.
Jeff: Just to let you know, if you're listening to the program today on iTunes, or maybe Stitcher, or Libsyn, thank you so much. We appreciate your comments and feedback there, and your reviews are also welcome.
We would also like to let you know that if you go to morganandwestfield.com, not only will you find this program there as well, but you will also find a complete transcript of everything that we're discussing right here on this program. Once again, morganandwestfield.com, so we hope that you'll do that at some point.
My name is Jeff Allen, and I am pleased to be joined by Mr. Mark Oxenham. He is a Principal at KLO Partners in London, and we are talking about exit planning and really the importance of getting started on that. And we know that it's not always easy to do, to take those first steps you'll have to go through. As Mark has said, selling your business is a process. And so is really the process of planning your exit strategy.
So, Mark, tell me, with your experience in having worked with your own clients, what are some of the first few important, critical steps that I as a business owner need to take in order to start to put some exit plans together?
Mark: First of all, you need to have the management quality and depth, excluding yourself, and understand that you have to have a really solid base for your business when you leave it. Looking at your sales mix, are you dependent on just one customer or two or three customers? And if you lost one of those customers, what would happen? Because that is something negative that a purchaser would look at. So you have to be very concerned about your sales mix, making sure that your processes and systems are up-to-date and well-managed.
I think that's really important, because people like simple systems that work, preparing monthly management accounts, having accurate forecasts and prepared cash flows that are not just done because you do them but are managed on a very, very regular basis, and you understand what's happening with your money.
Consistent and historic and forecast growth, people want to buy businesses that are growing. If your business isn't growing, why isn't it growing? You need to look at those issues. What's your pipeline like? How many orders have you got? Are you subject to seasonality? Do you have no business at Christmas and loads of business in the summer? How can you improve your seasonality by doing other things? Do you have good profits? How can you improve those profits? What do you need to do? That's really important. People want to buy a business that's profitable. And are you the bottleneck in your business?
Jeff: Oh my goodness. That sounds like something that I wouldn't want to deal with personally.
Mark: A lot of owners are bottlenecks. Everything has got to go through them and they can't delegate. Buyers seek a smooth transformation without an ex-founder or an ex-owner that would inhibit the growth. So it's really important that you're not the bottleneck.
Jeff: It could be a slap to one's ego. But you know what, a true wake-up call, and a wake-up call that could also be an aha moment. Because imagine, if you could discover where the fault lies with you as the business owner, as the bottleneck in your company, imagine that you too can take the steps to improve that situation and really talk about improving the value of your company.
Can you imagine if you are able to find out that you were in your own way of growth but you are able to take the steps to fix the problem?
Mark: Indeed. And the other issue is that when people buy businesses, they will look at the industry sector that your business is in and are your pretext profits and your margins above that industry sector? And if they're not the average level or below, that's not quite as good.
And the other issue that does sometimes raise its head is how complicated the share structure within the business has to be. You've got relatives or you've got a small investor, or you've got something else and somebody wants to buy it has got to deal with the complicated corporate structure. And that is a negative. So one of the things that needs to be done is that needs to be smoothed out so it’s an easy transformation to a new owner.
Jeff: Mark, I know, we kind of got an answer to the next question that I was going to ask and that I am going to ask you in your last response. You talk about are you a bottleneck in your own operation. I guess what are some of the other significant things aside from being a bottleneck in your own organization, or maybe we can kind of break it down a bit, the significant things that business owners are reluctant to do that could get in the way of selling their company successfully?
Maybe these are things that make a business owner uncomfortable, or they're things that they should have been doing all along that they just simply don't want to do. They don't have the time or they don't feel that it’s productive for them.
Mark: Well, the first thing they have to admit is that they're not the expert at selling their business, and they really do need to get a specialist involved. I've said it before, it's the old story. You do need to let specialists help you, because they will benefit you and benefit the final price you get.
But more importantly, not concentrating on running the business and keeping it running well and profitable, and making sure that sales are continuing. Because if you get distracted by a business sale, and you're not running the business, and it's not making the money, the money it was all of a sudden it's starting to slide, which will reduce the value.
They've got to concentrate on keeping the business running well, that's very important. But we've talked about it before, Jeff, getting and having an effective second in command, a good core senior management team ready to work on the transition and transformation so that the purchaser is going to feel really comfortable with that team in place.
Jeff: One of those words that I like to use lately, because it's become such a fashionable term to use when you're talking about narrow-mindedness is that we all tend to at one time or another exist in our own little silo, where we're kind of busy doing this, that and the other. And that might include not just working on our business but in our business.
And you know, Mark, very, very well that so many of small business owners are guilty of doing that. It's just kind of a fact of life where we almost kind of see our own businesses, quite frankly it's a job that we have to do. It's our going to work, it's going to our job. And so you're talking about finding that second person in charge to help you move your company forward. That's the overall operation. Your company, this is not just a job it is your business. You're serving others.
Speaking of others, all those people who work underneath you, when I say you I mean business owners, your staff, the people perhaps on your manufacturing lines, the people who work in your hotel from the maid services, to the folks who bus the tables, to the people who work in the offices, everybody involved, supervisors, upper division management, what have you.
These people, how important is the team toward helping you sell your business successfully, with the understanding, of course, that there are confidential concerns that need to be adhered to in order to allow that sale to go through smoothly. For some of us, do we still take for granted the people that work for us that really kind of help to make our engine go?
Mark: I think that's true to a certain extent, Jeff. But I have to say that a well-run business, doing the right things for their employees, paying them properly, giving them the correct benefits, nurturing them in the work place, proper training programs and ongoing training programs, all those good things, and staff employee welfare, they want to be successful. They want to see progression.
And if you're selling your business, first things first when employees find out they will be apprehensive. But if they know that they've been well-trained, that they've helped the business grow, they will be far more appreciative of when the business is sold, that the new owner will understand that they have been bought through and been trained well, and will be an asset to the business moving forward.
And it's particularly key for the senior management team who will have been or should have been bonus by performance and all that sort of thing. But getting those key people involved in this exit process with not making deals with them but explaining why you're doing it.
And most people that work in the business will understand if the owners in his late 50s, early 60s, they're going to want to move on. And they will have subconsciously thought about that anyways. So it's managing your key employees through the process and making them absolutely key to the new business owner. The new business owners will want them.
Selling a business is not an event, it's a process.
Jeff: Mark, we're running short of time here, so I'd like to kind of jump ahead a little bit and ask this question of you with respect to getting down to the end of the line.
Everything seems to have been addressed and you've got essentially a deal on the table and you've been at it for a while in these negotiations with the buyer of your company, and you're finally getting closer. The finish line is coming up and you can see it, and all of a sudden, things just kind of come to a halt.
Mark: Let me talk to that. It's what I call deal fatigue. Deal fatigue means that it's taken too long, that the lawyers have gotten involved and they're making their money by sending emails backwards and forwards on minor points.
When I do a deal I set a time frame, and that time frame is never more than 12 weeks from start to finish. There's a time table we go to and we let the agreement that the first agreement, the share-purchase agreement, go backwards and forwards once. Each side had a go at it.
And once that happens, I then insist that the lawyers from each side, together with the principals, together with the accountants and the advisers, sit down around a table in a conference room, with an empty room available. And we go through that document line by line, clause by clause. And if one side doesn't like it or can't agree with the other, you can go out to the empty room and discuss strategy. Come back in and make a proposal, and the other side can do the same. And it is torture for both parties.
But if there's goodwill on both sides, what happens is at the end of a period, which has been for me as long as two and a half days, as little as a morning, you've got basically the deal done. Because if you let the lawyers get a hold of it, they will run it forever, but you know that.
Jeff: We also do know that there are many attorneys out there who their hearts are in the right place and they're really trying to kind of work to make sure that the deal does end with a win-win solution for everybody. And that certainly is what we would like to hope for.
Mark Oxenham, maybe there are people in your region who would be very interested indeed in chatting with you about their circumstance, and they'd like you to help them plan their exit from their company, and perhaps even sell their business, how can they reach out to you?
Mark: They can contact me by email. I'm email@example.com. Or you can look up the KLO Partners' website, www.klopartners.co.uk. And indeed if you look me up on the internet under Google you can find me very simply.
Jeff: Mark, this has been an insightful conversation. I appreciate all of your time and I'd like to have you back on this program again at some point in the future. Would you like to do that with me?
Mark: I'd be very happy to. Thank you, Jeff.
Jeff: Mark, thank you again. Tell a friend about "Deal Talk," won't you? And about our guest on this segment, Mark Oxenham from KLO Partners. In addition to morganandwestfield.com, you can find us on iTunes, Stitcher and Libsyn.
"Deal Talk" has been brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen, thanks for much listening and we'll talk to you again soon.
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