You should expect a lot from your business exit advisory team as a good team won’t come cheap.
So, exactly what should you expect and how much is it likely to cost?
In my last few posts we’ve looked at my four “pillars” for getting the best business exit deal. We look further in this post at Pillar 2: Put a great advisory team in place.
In my last post, we covered the types of specialist advisers you need to achieve a great exit and the importance of them working as a team. And you may well have raised an eyebrow at the idea of potentially paying five or more advisers to help you achieve your business exit.
I’m not suggesting you get more advice than you need, or pay more for it than you should. You should expect to get great value for what you spend. Which is what, exactly …?
What you should expect from your advisory team
The five key things you should be looking for from your advisory team are:
• Assisting you develop and maximize your business value to achieve a higher value exit.
• A well-planned and efﬁcient business exit process.
• Savings in areas such as tax and transaction costs.
• Risk minimization in areas such as deal structure, warranties and payment terms.
• Support to help you identify and deal with the emotional and non-ﬁnancial issues that will inevitably arise during your business exit.
The bottom line
As a rough guide, you should assume your advisory team will cost in the range of 5% to 10% of the sale price of your business. In some cases, it will be more. It sounds like a lot of money, doesn’t it? So why should you pay that much?
In my last post, I covered the differences between technical advisers (such as lawyers, accountants and corporate advisers) and leadership advisers (such as business growth advisers, HR specialists and business coaches).
As a generalization, your leadership advisers should make you money during your exit and your technical advisers should save you money.
Engaging good leadership advisers early on can help you build a much higher exit value for your business.
They can help you make adjustments to products, internal processes, market interfaces and business structures that could multiply the exit value of your business several times over. This does take time, however, so it’s always preferable to start these types of activities well before you actually commence your exit.
In addition, a high quality corporate adviser will secure much higher prices from potential buyers by running a good, tight competitive sale process. This is my Pillar 3 for getting the best exit deal, which I’ll cover in a later post.
Good technical advisers will save you money and minimize your risks.
It’s not uncommon for a good tax specialist to save you hundreds of thousands in tax on a reasonable-sized business exit, while a lawyer who strongly negotiates your warranties can minimize the risk of you paying out on a large claim after your exit. Over the years I’ve seen millions of dollars left on the table by business owners due to poor deal structuring and tax advice.
In later posts, I’ll touch on the stresses and strains you’ll inevitably experience during your business exit. Good advisers – who can be objective about your exit – are well placed to absorb some of these stresses for you. Don’t underestimate how important this can be once you’re deep into your business exit.
You get what you pay for
Great business exit advisers aren’t cheap. But would you rather “save” yourself some money on adviser fees, or have a top-notch team that saves and/or makes you exponentially more?
From a cash flow and risk perspective, it’s also important to understand how your various advisers are likely to charge you. While most advisers will work on hourly rates, retainers or a mixture of the two; one of the biggest costs in your business exit will be the fees payable to your business broker, corporate adviser or investment bank. Importantly, they generally work on a success basis. This means the bulk of their fees only become payable in the event of a successful exit.
Interested in more on how to put a great advisory team in place? Check out Strategy 6 in The Smart Business Exit: Getting Rewarded for your Blood, Sweat and Tears.