Time to sell your business

Posted on: January 28th, 2015

Many business owners will have delayed any decision to sell their business following the 2008 banking crisis and its impact on the financial markets. The M&A market is now, however, beginning to return, with businesses looking to expand and acquire.

Now is the time to dust off sale plans and prepare your business for potential buyers, says Amanda Brockwell.

Most entrepreneurs do not create a business simply with a view to a future sale. There is usually the desire to deliver a better product or service, develop a great idea, or the desire to take control over your own destiny.

There will, however, come a time in most entrepreneurs’ lives when the question of a sale arises. It may be the decision to retire, sell out to your management team, or perhaps to become part of a much larger or global offering. Whatever the motivation, it is a big decision and one that needs thought and preparation to secure the best possible price.

The X Factor
The key to a successful sale at the best possible price is to make your business as attractive as possible to prospective buyers. Perhaps you may have some valuable IP or clever technology. Maybe it is the size of a business in a particular location, or the strength and loyalty of your customers. All of these things will help push up the sale price, so take time to identify your X Factor.

Valuation
If the popular BBC Dragons’ Den show has taught us anything it is that business owners find it very difficult to arrive at a sensible valuation of their business. Advisers, like estate agents, will offer a high valuation to secure your business, but finding a buyer at that price is often a different matter. Professional advice and a realistic valuation is vital.

Who will buy?
Marketing the business to potential buyers takes time and patience. M&A advisers can help and will have contacts and access in the market. But choose your advisers carefully. Check their credentials, experience in the sector and track record, and meet the team that will help you sell your business.

It is worth looking closer to home and at your own management team. If they are young and hungry, and can secure funding, it will certainly make the sale process and transition a little easier. But do be prepared to sell-out on a staged basis, perhaps over three or five years.

For many businesses, however, there might only be one buyer in the market – your immediate competitor – that might welcome the opportunity to bolster its business and remove a rival.

Driving value down
Buyers will almost invariably wish to drive down the sale price and will look for weaknesses in the business on which to negotiate.

Is the business, for example, overly reliant on you? What will happen to your customers if you walk away? If that is the case, consider delaying a sale further and introduce a management team allowing the business to operate more independently.

If the business is overly reliant on one particular customer, that too may drive down a sale price.

Your motivation for the sale may also impact its value. A desire to leave a legacy and protect employees will not only limit potential buyers, but also hold back value.

Financial reporting
All companies are required to produce annual reports and accounts, but buyers will want to see more. How do actual sales compare against budgeted sales? Is cash flow an issue? And what about bad debts? If the business does not have a Finance Director consider expert help to ensure the deal doesn’t fall down.

Timing and team
It will take time to sell a business. Business owners should, in our experience, allow up to three years to ensure the business is in the right shape to take to market. Once the process begins, it can move quickly – often within three months. But surprises can crop up at any time – a senior member of staff or a key customer might leave – so the quicker the better.

A good team is critical to moving the deal forward. Make sure advisers are experienced and resourced. Do not be afraid to consider special legal and financial support to get the deal done.

Small details
Small details can often break a deal. Does the business owner wish to keep his £80,000 company car? That could be a big asset to take from a small business. And what about the lease on the office? Is it about to expire, leaving the buyer with an expensive dilapidations claim? All have been known to break a deal at the eleventh hour.

If you are considering selling your business contact Coffin Mew’s specialist Corporate team for advice.