In this workable episode, Darryl Bates-Brownsword, Founder of Succession Plus UK, shares strategies to make your business sellable. If you struggle with exit planning or maximizing value, you won’t want to miss it.
You will discover:
– What intangible assets like IP and branding increase valuation
– How to start exit planning early to ensure a high-value sale
– Why reducing owner dependence boosts your business’s marketability
Episode Transcsript
Scott Ritzheimer
Hello, hello and welcome. Welcome once again to the start, scale and succeed. Podcast, the only podcast that grows with you through all seven stages of your journey. As a founder and I came across this crazy statistic that I think all business owners should know, and that is four out of five businesses fail to sell. That’s 80% that’s insane. And so, especially for those of you stage five CEO founders out there who have an eye on becoming owners or selling your business outright, this is a must watch episode, because here with us today is a podcast friend of mine, the one and only, Daryl Bates-Brownsword, who helps business owners to turn their life’s work into a valuable legacy. As an expert in succession and Exit Planning, he works with small and medium enterprises to build resilient, sellable businesses that thrive without owner dependence through his 21 step methodology and exit insights podcast, Darrell empowers entrepreneurs to make to maximize business value, minimize risks and exit on their terms. Darryl’s insights are a must here if you’re ready to secure your future and create a business, business that buyers will love. And he’s here with us today. So Darrell at succession, plus you guys guide founders through, especially as stated on your website. These five big we’ll call them value stages, to make their business sale ready. So for a founder, had some success, they’ve got an executive team around them. The business is really humming. For all intents and purposes. They have no reason to think about selling right now, but someday they will, and oftentimes it’s too late. So for those who are in that place, they don’t necessarily need to get out you, and I know that’s the best time to start working on your exit strategy. So for that person, what are these five different stages, and why are they so essential for a high value sale?
Darryl Bates-Brownsword
Thanks Scott for the fantastic introduction, and I love the fact that we’re getting straight into the moody stuff, so it’s 100% value straight off the bat. So five stages, these are just the stages that we need to think about. If we’re going to be selling our business, we want business owners to be moving beyond that. Hey, I think my business is worth X. I’ve, I’ve seen my mate sell his business, and I talked to him down the pub, and he got this and I got that, and mine’s better than his. It’s, there’s a bit of a black art and a black box to valuing a business. But let’s put you on the front foot. Let’s make sure that you are in the best possible position because of that stat that you shared before, like, four out of five businesses don’t get to sell, and it’s the smaller end of the market where that overweight that stat, but still there’s why do they not sell? Is we need to start thinking about when someone’s looking to buy your business, how are they going to value it? What are they looking for? And all they’re looking for. Well, all they’re looking for, but the big picture of what they’re doing is they’re going, what’s the likelihood of this business continuing on its current path or its current trajectory once the ownership changes, and the more you can mitigate that risk, the more value you’re going to do. So let’s quickly look at the five stages. The first one is, let’s start our exit planning. So let’s just identify what we’ve got already. Let’s do a snapshot. Let’s do some due diligence from your side of the table, while you’re in control, while you own the business. Then let’s then sort of protect what you’ve already built. You’ve been building your business and doing a whole lot yourself and running the business and growing and getting annual growth. But let’s just sort of protect and mitigate all the risks that are just out there that you’re flying by the city of pants, and I’m not saying you’re unstructured or anything, but there’s just a whole lot of risks that sit in your business that you’re just consuming every day. So let’s protect what you’ve got, and part of that protection will make sure that your business is worth at least the standard industry average. Once you’ve got that under your belt, you can then start to go breathe a sigh of relief, because you’ve actually built a nice foundation for your business. You can then start thinking about, how do I maximize the valuation of my business? I’ve got a nice foundation in place. I’ve secured, if you like, the standard industry multiple now, what are all those intangible things I can start to work on that will increase the multiplier of my profit number and increase the valuation that way. So all the intangible assets. Now, once I’ve done I’ve been looking at that, and I can take my business as far as I want to go. So there’s a simple formula and list, if you like, of the things you can work on, all the intangible assets. Now I’ve maximized my value, I’ll get to the stage four, and that’s how do I extract it, because then I want to make sure that I’m set up for a deal, that I don’t have to get my valuation through an earn out. How do I secure that exit transaction piece and get all of those component parts line up so. Want you to exit on my terms, and then once I’ve done that, if all goes to plan, I’ve set myself up. I’ve set my family up. I’ve set the business up so the business will will continue to run and prosper without me or any other owners involved. But now I’ve extracted all of my family wealth, it’s been sitting in that that risky entity, the business facili, I’ve extracted it out, and I’ve got a, hopefully now, a nice, really healthy bank account. And I’ve got a different type of wealth to manage. I’ve got a different risk profile for how do I manage the value that I’ve just extracted out of my business, and if I’ve done really well, how do I make sure that it’s generational wealth? How do I avoid the different types of legal and tax traps that I haven’t been aware of over all these years. So it’s I now need to manage all of that wealth and create the family value I’ve created.
Scott Ritzheimer
Love it. I love it. So let’s walk through these briefly, because I think there’s some there’s some big opportunities to get these stages wrong. So it’s one thing to know what they are. It’s another to do them right. So identify value stage right out of the gate. What’s the biggest mistake that most folks make here.
Darryl Bates-Brownsword
Thinking their business is worth a certain number because of industry averages, because of their mate sold his or her business down the pub without getting an independent valuation. My encouragement is, if you start the Exit Planning, get a current state assessment, understand what your business is worth today and get that done by someone who doesn’t have skin in the game. And what I mean is, if you get an investment banker in your business or a business broker to value the business, they’re inclined, they’re motivated to give you a number to win your business that’s going to seduce you into working with them. So we’re just doing the planning stage. Let’s start with an independent valuation, and then let’s the big here’s the big tip, Scott, let’s develop when we start Exit Planning, or succession planning doesn’t mean I’m going to exit in two or three years. It means I’m just getting the business so it is exitable. Yes, do that. I need to make the mindset shift from revenue growth year on year to valuation growth. Let me start measuring the valuation of my business every year, because that’s where the rubber hits the road, right? Profits, vanity valuation, sanity. Let’s, let’s, let’s get some serious methodologies into our business and assess the valuation, not just.
Scott Ritzheimer
So good, so good. All right. So moving forward, stage two, we’ve, we’ve gotten an independent valuation. Now it’s time to protect that value. What are some of the risks that you see disappear under the radar? We’ll put it that way, what are the ones, the biggest risks that are right in front of them, but that a lot of founders miss.
Darryl Bates-Brownsword
Biggest one is perhaps, owner dependence, I guess, is, who does what? If someone’s sick, how do I, how do I transfer roles and responsibilities slickly? And that’s, you know, is the business systemized? So I guess I’m separating operational risk, and, you know, methodology risk, I guess, if you like, but there’s a whole lot of risks that we can address by by working with an insurance broker, and we can protect our income, we can protect all of our business assets. We can do all the standard things with getting insurance policies, but if we do a proper risk assessment, we want to start looking at governance, we want to start looking at systems. We want to look at owner dependence, and they’re the things that I really focus on, because we’ll just outsource and get a risk assessor into to do a full blown risk assessment, right? But what are the things that we can do we touched earlier. We want to demonstrate that the business will continue on its growth trajectory once the ownership changes. And the best way to do that is to demonstrate that as the owner of the business, you’re not required in the business, but you’re, you’re you’re operating in just three roles. And here’s, here’s my, my biggest tip here, if you like, you want to make sure that you’re seen as the person, as the vision, and you’re sharing the vision, and you’re the big ideas person, going, we’ve got to go in this direction. The management team figures out how to get us in that direction and keep us in that direction, management team, leadership team, whatever you want to call because it’s an SME business, an owner in business, owner led business, where the owners are involved, not necessarily in day jobs, but they’re involved in the business. They’re the keepers of the culture. No matter what we say about vision and values and what have you, people are just going to look to us for guidance on how we show up and behave in the business. If we behave in a certain way, that’s the standard they follow. So we set the vision, we keep the culture. And the third thing is, we’re not in operational roles. We coach, we don’t play so yeah, just focus on those three things, then they. That’s the biggest risk mitigation gone. You’re adding real value to the business. You’re coming up with the big ideas, you’re coming up the big strategies, you’re setting the culture, and you’re not involved on a daily basis, because you’ve got people, competent people, who know exactly the scope of their roles and the extent of their responsibilities running the business. And they’re running the business to a systemized approach, so that yes, so they’ve systemized the running of the business, and they’re using something like Eos,
Scott Ritzheimer
Fantastic, fantastic. So that gives us a real, natural segue into maximizing the value. So we’ve got the base level. Hey, we’re not below market in these areas. Now, how do we really start to step on the accelerator. You talked about changing our focus from revenue growth or profit growth to valuation growth, yeah. What are the what are the main pitfalls here? How do we tend to get this wrong, and what can we do better?
Darryl Bates-Brownsword
The things we get wrong again is making assumptions and just looking at everyone else and and what I see is business owners, they’re going, Hey, look, this person sold his business and they got five times. Mine’s better than his, you know, and mine’s worth seven go, why? Substantiate that claim? Or they’ll go, Hey, but that business got 12 times. And we’ll go, why? And they’ll go, well, they just got lucky. I go, bullshit, nonsense, right? So there’s a reason that they got 12 times, and it’s because they had built the intangible assets. And what are the things we mean by intangible assets? Well, they demonstrated that the culture was clean and people stayed around and they knew exactly what they were doing, and they didn’t have staff turnover, and people knew exactly what they’re doing. They knew they had job descriptions. We had an organizational structure. We had systems in place to make sure that business is consistent, repeatable, reliable. Everyone knew what they’re doing, and it means that they’re not working stupid hours to get things done and peaks and drops. Great culture. We’ve then got, we talked about systems. We’ve got a systemized approach. We’ve then got some sort of proprietary methodology around our product, and we can be a service based business, but whatever it is that you’re selling your service is a proposition, and it’s got to solve a problem that the client has. Now they can come to you and say, hey, I want a haircut from you. If we’re a beauty salon or what have you, or they can go, I want the Scott special. Thanks. Because everyone knows that the Scott special, and I’ve probably used a bad name there, but you’re no it’s definitely IT company name. So what we want, we want, we want to demonstrate that to really build value that the people are coming to buy the proposition rather than the purpose the person. And that’s why I said Scott was probably a bad, a bad, okay, we want people to buy whatever your business sells, which is packaged up and you’ve got some IP around it, and they’re either buying your methodology or your name or your solution name, or what have you. We want people coming to your business for the process or methodology, rather than Scott, who’s doing it, or Darryl, who’s doing it, who we love Scott, because Scott always looks after us. He does a great job. And I’ll just follow Scott, whichever business he goes to next, right? That deflates value from your business. So we’ve got some methodology, and the next thing we’ve got is we’ve got some branding. Have we branded the business is my methodology now linked to my brand, and the two are one and the same. And whenever I talk about brand X, I’m associating it with that methodology or that IP or product or what have you. And then then bang, that branding becomes known in the marketplace. A lot of business owners, especially when they’re small, they’ll get a logo and a brand and and some letterhead done, and they think they’ve done brand branding so much more than that. When you talk to the gurus, and it’s being the brand is a promise. It becomes it’s like, if we we talk about Trump as a brand, everyone knows what you’re going to get with it, with a guy you know, doesn’t matter which side of the fence you sit on, you know what you’re going to get with Trump. You may like it. You may not. It doesn’t matter. He’s branded, and it’s great well, and everyone knows what to expect from him. That’s what I mean by branding. So your business needs to have an implied promise just that’s associated with your name. That’s when you’ve nailed it, and then your business is worth a whole lot more. Next thing is on the little methodology that I use is, are you scalable? If I’ve built this little prototype, if you like, where I’ve got my product, my methodology, my culture and my staff and my structures and my systems in place, and I’ve got my roots to market tap, because I know exactly who I’m solving problems for, and I know how to approach my target market, then I’ve got a template, if you like. I love Gerber’s language in the E Myth. I think he called it a franchise prototype, but you can then plug and play and replicate that business model in more locations. You’re scalable, right? So that that’s the next layer. If I can just demonstrate that, here’s my. Prototype. I just need a bucket of money, pe type money, to come in, and then I can, then the business will scale up. But I’ve done all the hard work. I’ve proved the concept for you. Bang, there’s the next piece. You put all those things in place, you’re going to get a top, top model for valuation for your business.
Scott Ritzheimer
Absolutely, absolutely. So that takes us to the next stage here and unlocking that value. So this can be really intimidating for a lot of folks, because it has a huge impact on your life in many ways. It’s the it’s the final assessment of how you’ve done over this years, in all these years, in a few ways, and there’s a lot of emotion riding in all of this. So as we’re walking into this unlock value stage, how can we manage some of the emotion, and what should we expect?
Darryl Bates-Brownsword
You’ve I think you’ve nailed it there, Scott, there’s a lot of emotion involved. And yeah, I’ve built this business over so many years, it’s hard not to be attached to it, and it’s hard to separate. It’s been like when your kids go and get married, I guess, and or they go and they leave home, which they’re going to do as much as you love having them at home. You love when they leave home to give you a break, but at the same time, you don’t want them to go because they’re now adults, and they’re good company, and they’re with you, so your business is going to leave home at some point. So the best thing we can do is get a third party involved who’s not emotionally attached to our business, yeah, to drive the process and to drive the negotiations. So whether that’s an investment banker and a CFO and a lawyer, they’re the three that I would always have as part of the team, and I’d, in fact, get the CFO involved two or three years before to start getting the financials and the business due diligence ready. And even if you’ve already got a part time CFO in your business, or even a full time CFO, I would consider getting a deal specialist CFO in to support your your regular CFOs, because they’ve still got their day job that they need. But you get a deal specialist CFO in to get the business specifically ready for exit, because you don’t want anything to slow down the negotiations. Once you start talking deals, anything that will slow it down will decrease the value of your business. So you’ve got your CFO involved. You get your investment banker. They know the s and you want one that got specific knowledge of your industry. Get them involved. They can do all the negotiate negotiations on your behalf. And they’re not emotionally attached. They know the market. They know what’s possible. They’ve got the experience do all the negotiations on your on your behalf. And the third one, an attorney or a lawyer or a solicitor, depending on where you’re based, make sure you again, get someone who’s got experience in deals to make sure that you’re not taking any unnecessary risks and you’re not going to be caught out by the terms of the deal that end up being more favorable to the buyer, right? So they’re three key players you want, and that’s where a lot of people take shortcuts, because they’re expensive, but it’s like L’Oreal. It’s worth it. There’s an example of branding.
Scott Ritzheimer
Love it. I love it. Now. What happens here? And you mentioned this in the very start of the episode, you got a big wad of cash inside a bank account somewhere for most business owners, way more than they’ve ever had before. Yeah, and with that bank balance comes a huge responsibility to steward it well. And so as we’re looking at that balance, thinking about turning it into generational wealth, what are some of the biggest mistakes you see post exit, post sale that founders and owners make.
Darryl Bates-Brownsword
Biggest one I see is when a business owner has been building their business and building their wealth steadily over 1520, years, and they may have an IFA for a wealth manager or financial planner that they’re working with, and they’ve been working with all those years, and because they’ve got a good relationship with them, they want to be loyal to that person. Understand that we all do. But just like when you’re running your business, your suppliers and your clients, and especially if you’re B to B, your client, businesses tend to be a similar size and scale to you often work for your most successful relationships. So if you’re a 10 million pound business, you’re probably working with an accountant who is a 10 million pound or a $10 million business, because they’re a similar scale to you and scope of operations, and they know how to look after businesses of your size, sure. So you can see where I’m going with this, if you, if you don’t, you now got a whole lot of money, because you’ve been really prosperous in building the valuation of your business, and you got a big chunk of change, and we’re now talking that, yeah, you may have, you may end up with 1020, 30, hundreds of millions of of the proceeds that end up in your bank account. You need to make sure that you’re working with a professional who’s used to dealing with funds and investments of that size. Yes, after all those years of hard work, you don’t want to blow it by making the wrong investments, by missing out on by paying too much tax, by not protecting your generational wealth, not looking after your family members and doing the right things and getting your wills, and you all of the other bits and pieces and trusts, and you’ve just got to get someone who’s an expert, and I’m not an expert in this area, but you want to work with someone who’s got a private office, who’s used to dealing. They’re not buying retail investments and just getting things off the shelf. These guys access to wholesale they are. They’re just working with private client, and that amount of wealth to get the right advisors again is the key here.
Scott Ritzheimer
Yeah, yeah. Marshall Goldsmith nailed it with what got you here won’t get you there. But what keeps striking me as we’re going through this episode is, who got you here won’t get you there, right? Most founders at this stage have a brilliant team around them. They’re executing. I mean, it’s like, it’s like clockwork. And a lot of what goes wrong here is the team that runs your business is not the team you need to transition your business and and that can be intimidating, but if you think about it, you didn’t know how to how to figure out who you needed back in the early days, right? You figured that, over time, with the right guidance and the right focus, you can build that skill for this stage of the your journey as well. And and every one of those questions came back to a who, right? It came back to who we need in this process, and so, so helpful. If you didn’t catch that you’re listening or watching, go back and watch it again, because you’ll see that the thread run all the way through and just make a list of all the people you need to connect with. And that’s your homework. But Darrell, before I let you go, because we’ve got through these five different stages, but there’s a question that I ask all my guests that I’d love to ask you, and then we’ll make sure folks know how they can get in touch with you, because I know they have questions, but my question is this, what is the biggest secret that you wish wasn’t a secret at all? What’s that one thing you wish every founder owner listening today knew.
Darryl Bates-Brownsword
The big one Scott is, and when you, when you I didn’t know this question was coming, and I was sitting here going, Oh, what’s going to hit me with? Well, I know the answer, but I know the answer to this straight away. The biggest secret is, is kind of where we started. This is we said, hey, look, only four out of five, sorry, four out of five businesses that go to market don’t sell, they don’t end up with a successful deal. And that kind of is the biggest secret. Because business owners, the successful entrepreneur. Business owners that we’re talking about are very entrepreneurial. Entrepreneurial people are really optimistic people. And all of them think, well, I’m going to be that 20% right? So the biggest secret is they just assume that our business is okay, we’ll be able to sell it no problems and and they don’t do that any preparation. Because, like you’re saying, if we start preparing three, four or five, even 10 years before we plan to exit, we make sure we get to know the right attorney, the right lawyer to work with. We know when to upgrade our tax person. We know which m and a consultant, broker, investment banker we’re going to be working with to that we get on. Weldon is an expert in our industry, and and over the years, we’ll build a relationship with them, and when we’re ready, we can just pull the trigger, and we can have 100% confidence. And it’s not that we’ve done it before, but we’ve done all the preparation that puts us on the front foot, and we will definitely be one of the 20%.
Scott Ritzheimer
Absolutely, absolutely. Darryl, before I let you go, I gotta know. How can we get in touch with you? How can folks listening or watching today reach out and connect with you? Get succession plus,
Darryl Bates-Brownsword
Okay, the best way to get in touch with me is through LinkedIn. You can see my name on the screen. There’s only one of me on the planet. It’s good and bad sometimes, but LinkedIn is the fastest and easiest way to get in touch with me, and you’ll get in touch from there, you’ll get through the website and everything from there.
Scott Ritzheimer
Fantastic. We’ll get that LinkedIn profile in the show notes as well, so you don’t have to go searching for it, although I wish I was able to say that you think like a name like Scott Ritzheimer, there shouldn’t be more than one of us, but I’m a junior, so I know the feeling that. But anyway, Darryl, fantastic. I love the simplicity of it and yet the power behind it, and I hope it sparked something for some folks listening today, don’t be one of the four in five. Be one of the one in five, and follow these steps. Maximize the value of your business, and you will be so glad you did reach out to Darrell and the team. LinkedIn notes below, Daryl, thanks for being here. It was a privilege and honor having you on the show. I really appreciate it. And for those of you watching and listening today, you know that your time and attention mean the world to us, I hope you got as much out of. This conversation, as I know I did, and I cannot wait to see you next time take care.
Contact Guest Name
Darryl Bates-Brownsword helps business owners turn their life’s work into a valuable legacy. As an expert in succession and exit planning, he works with SMEs to build resilient, sellable businesses that thrive without owner dependence. Through his 21-step methodology and Exit Insights podcast, Darryl empowers entrepreneurs to maximize business value, minimize risks, and exit on their terms. Darryl’s insights are a must-hear if you’re ready to secure your future and create a business buyers will love.
Want to learn more about Darryl Bates-Brownsword’s work at Succession Plus UK? Cconnect with him on LinkedIn at https://www.linkedin.com/in/darrylbates-brownsword/ or check out his podcast at https://www.exitinsights.co.uk/