Category: Helpful tips for SME's | Preparing to sell a business
Tue 30th April 2019
In meeting and talking with business owners, we come across some quite common challenges in making the decision to sell a business. We’ve put together 8 common quandaries which often hold business owners back and have the potential to delay or even derail their retirement from the business.
1. Will everyone find out the business is on the market for sale?
If you’re coming to retirement age it may not be a surprise to the people around you that you wish to sell the business. However, even if this is the case, it’s best to keep your decision to sell your business to yourself until you have a tangible plan for what will happen to the business in the future.
Uncertainty about the future may raise anxiety amongst your staff, and concerns with both your supply and client base. These key stakeholders in your business finding out about the sale “through the grapevine” must certainly be avoided.
On the flip side, to achieve the best offer the business needs to be presented to as many serious prospective buyers as possible. Buyers will also need to be provided a certain amount of information about your business in order to make a decision on whether it is a good investment for them and to assess the value to them.
A good broker will ensure the marketing of the business is done discretely and that all prospective buyers are bound by an appropriate NDA. They will also control and keep a register of the information provided to each buyer, restricting the level of information provided as necessary.
In due course you’ll need to inform your staff, suppliers and clients, once you have concluded a sale or just before completion. Once you have reached this stage, you’ll be able to present the transfer of ownership as a positive opportunity to all concerned.
2. Is now a good time to sell my business?
Whilst there are varying views on the state of the world economy and the impact of Brexit, buyers’ focus remains on the sustainability of the business in terms of its management, key customers and prospects for growth.
Therefore, when considering the timing of a sale, we recommend looking at the prospects for the business itself rather than macro-economics. Good businesses with sound returns, sustainable revenue and a solid growth trajectory will always sell well.
In our experience, it is always best to sell while you are still successful and enjoying it.
3. What is my business is worth?
Valuations given by business brokers when prospecting for new business can vary tremendously. This leaves business owners in a quandary as to which broker to select, as well as making it difficult to plan for your retirement or next business venture.
Whilst it may be tempting to go with the broker who says they will achieve a top dollar price, being confident that your expectations are aligned with the market is of utmost importance in achieving a successful sale of your business. If you or your business broker are asking for too much, serious buyers will not take you seriously.
At Hornblower we pride ourselves on giving realistic valuations and advice. It simply lays the ground work for achieving a deal which works well for both buyer and seller, a win-win deal to achieve the best market value.
4. Is the value of my business enough?
Whatever the theoretical value of your business, “is this enough?” is another important question.
Some business owners will set their objective for the deal value on what they need for retirement. The problem is that what you need is of little concern to the buyer; they are more concerned about their return on investment and sustainability of the business.
It is important that you understand your personal financial position and how the value achieved for the business will affect your future.
If you have in mind that you require a £2m deal value in order to retire, but the best offer is only £1.5m, would this affect your standard of living in retirement? Or is this enough to pay off the mortgage and invest in your next venture?
Wealth planners and financial advisors can be invaluable in planning your financial future and determining what you need from the sale.
5. Will the buyer come in and change everything?
This is an understandable concern which many business owners have, due to commitment to your staff – people who have helped you build the business over often many years. Clearly all buyers will have their own ideas for how to take the business forward, but It is not in their interest to change things that work well and are profitable.
Most buyers will be reliant on keeping the management team in place for as long as they wish to maximise the profitability of the business. Many acquirers will bring in new products, platforms and suppliers and as the company grows under new ownership, there will be opportunities for the staff who stay on after you exit your business.
In making an offer to acquire a business, it’s important for the buyer to be clear and open about their strategy for the company post-acquisition in order to allay the seller’s concerns.
6. Will the buyer know how to run my business?
Many business owners assume that if they sell their firm to financial investors, the buyer may have the money but will not understand how the business works. This assumption is true to the extent that the investor has not experienced the business from your vantage point of growing and developing your client base, suppliers, team and business processes from scratch – but the right private equity group can offer your business much more than just money.
Most investors benefit from networks of contacts and professionals, and most importantly a portfolio companies which fit strategically with the businesses they look to acquire. They can also provide strategic guidance, find more customers or suppliers and can bring a new level of sophistication to your finances, marketing and operations.
Investment groups, as with most buyers, will look for a strong tier 2 management team who run operations day to day, and will often need you to stay on until a suitable replacement has been found.
7. Do I have to stop working after the sale?
Another common quandary for business owners who are reaching retirement age is “what will I do if I do not have a business to run?”
Although many company owners want a complete exit from the business, in some cases, the seller may decide to stay on and continue to play a vital role in running the company. Whether you are selling your business mid career in order to gain investment and expertise to grow the company, or due to retirement, being open to remaining in the business for some time, can be attractive to buyers.
A deal structure where the owner remains involved in the business, provides confidence to the buyer in the continuity of the business going forward and a potential second bite of the cherry for the seller on the eventual final exit.
This said, we often hear the question from business owners who have sold, “why did I not do this sooner?”….
8. How long will it take to sell my business?
A frequent asked question, to which we respond with our statistics. At Hornblower we sell over 80% of the businesses we take on within 12-15 months, out of which 25% are sold within 6 months.
The lapse of time kills deals, so it is in the interests of all parties involved to make sure the deal completes as quickly as possible.
Being prepared for the sale process with the information that will be required during due diligence is key to a successful sale. Very much part of our service is our preparation of a full information memorandum and our hands-on assistance in preparing the data room for due diligence. This enables the transaction to run smoothly whilst you continue to manage your business.
If you would like to discuss any of the points above, please do get in touch.