Minding Your Business
Each business varies in its needs. Every industry presents a myriad of different challenges and so, there is no ‘one size fits all’ solution which can be applied across the board. What follows here is a short journey through the decision-making process needed for a professional partnership. Even if your business is structured quite differently, some of what we say may chime with you.
An unique recipe is needed for every situation - and you will always need a skilled chef to prepare it!
Acquiring
Acquiring a business is both a challenge and an opportunity for growth. It can be both an exciting and a dangerous prospect. Too often, people become too involved in the chase. They look at the opportunity, the turnover and the profits they will gain, the market share they will inherit, the kudos, as their firm expands. However, there is always one question which lies at the heart of any business acquisition: why is this business for sale?
You will no doubt have asked that question, and then have been given an answer. You may well have reached your own conclusion on why this particular business is up for sale. In our experience, the question of 'why' is always a live and a continuing one, which you need to be asking throughout the acquisition process.
You may think you are looking at a relatively profitable business, but one with ageing senior partners who will be exiting. However, unless you keep asking yourself the question, you may miss subtle signs that some junior partners are completely disaffected and are more than ready to leave, taking valuable turnover with them!
You will not find that answer in the turnover figures or in all of your discussions with the senior partners. Even quizzing the junior partners may not provide the truth.
The acquisition process should involve detailed investigations, on many levels. Where possible, you should get outside help. You really do need a third party who can be objective and spend time hunting down answers to questions you may not even have considered asking - and someone who can keep an eye out for signs you may be missing.
In our experience, skill and experience start to breed a sixth sense of when a deal is "right". So, don't be afraid to ask for outside help.
Merging
So…. mergers?
This is a very difficult area and not one for the fainthearted. We often think the term is used loosely as part of a PR exercise to paper over what is really an acquisition. Of course, there are successful mergers. However, it is especially imperative that you look at the facts: two businesses cannot merge into one, without significant change.
In some sense, one of the two systems must predominate. And don't fall into the trap of believing that because one system is more successful than another, the adherents of the doomed system will be happy with the change.
In our experience, and without exception, every firm operates in a slightly different way and each believes that, in many ways, theirs is the right solution or system. A merger can often involve some painful truths. You really do need Generals at your side, to take some of the flak, or things could get very heated.
Kicking the tyres on a car is one thing but criticising another firm's work practices is an exercise in inviting conflict. If you can, seek some outside help to find mediated solutions and to engage in the rough and tumble of negotiations. After all, you will be working with these people after the event!
And it is astonishing just how many "merger" negotiations are reported as being aborted. We wonder whether they thought to appoint good external advisors, to keep their merger ship on course...
Selling
This topic can easily be considered under the heading of "Exits". After all, many professionals sell their practices in order to exit.
However, as we will argue, relatively few of them achieve a premium for their business, over and above any tangible asset value.
The process of selling deserves its own heading and while there are common themes, we would like to distinguish an exit from a sale.
Often, an owner will wish to release some equity, but continue working in their business. Others recognise there is an intangible goodwill value in their business, but one which can only be realised on a sale.
To make a success of selling, you first have to know what it is that you have for sale. And then why someone else would wish to buy it!
Selling is a journey which should always begins with a valuation. After all, a thing is only worth what someone else is willing to pay for it. And if you start off with a false expectation, then you are bound to encounter a problem, further down the line.
We can all be guilty of indulging in wishful thinking about the value of what we own. A reality check doesn’t stop the process; it just sets an achievable target.
Selling involves a myriad of decisions and processes and you need a clear understanding of the pitfalls, challenges and opportunities, in order to protect your best interests!
Exiting
Exiting any profession is the start of a journey. And, like all journeys, a successful exit starts with the planning.
You need to spend time with an expert on the thought, preparation and thorough analysis which will be needed, in order to achieve a good outcome.
To make a success of the process, you must first of all ask yourself some simple questions:
First of all, why do you want to exit?
And then, when do you want to do so?
Very quickly, you move on to the final question: how you will do so?
But, if you neglect the first two questions, then the answers to that final question can lack sense.
If you first ask yourself the question "why do I want to sell?", then the answer might be - "because there are a lot of competitors locally and I can only see one way this is going to end up - with my turnover going down and the value of my firm in decline!"
It is fair to say that if you can see that prospect, then others will be able to see it as well. So, in answering all of these questions, you can now see that the answers to the "how" question, only begin to make sense when you have answered the “why” and “when”.
You are already mapping out your journey.
So, if your practice is in gentle decline, then you must first take the steps needed to arrest that decline, or to improve its profitability; or to tailor your business so that it becomes more attractive to a potential buyer.
And all of this then feeds into the "when" question. So, if you want to exit in the next 12 months, and the measures needed will take a minimum of 12 months, then any sales process will need to be put on hold while you take any measures needed.
It is not rocket science but it is all too easy to fall into the trap of taking steps to exit before you have a fully-worked-out plan in place. Think of the fiasco that is Brexit!
Back to that analogy of a journey.
If you don’t have a clear idea of where you are going, then you will most likely end up nowhere.
The magic lies in working with experts to completely map out the route you want to take, in order to get to where you’d like to be.
Think of us being akin to harbour pilots, just as your ship hoves into sight of land. You have had a long journey and have valuable cargo on board. You are a skilled mariner. And yet you still call upon the services of an experienced pilot who knows the waters in order to get your business safely to shore, past the shoals and rocks.
We all need someone to pilot our ship occasionally.
