Selling a business – 4 common myths
In meeting and talking with business owners, we often come up against certain preconceptions when it comes to selling a business. So we thought we'd put some of the common ones together in a list and share our thoughts.
1) I can sell my business myself
Some business owners believe that they can sell their business by themselves. Why pay someone else to do it, right? However, selling a business is not like selling a regular product or service - it's far more complicated and there are many moving parts to be aware of and stay on top of. All while you continue to run your business.
Confidentiality is very important; how would it affect your business if your clients and/or employees find out that your business is for sale? Detailed documentation is essential; you need to tell potential buyers what they need to know in order to make a decision on whether to make you an offer. Other questions to ask yourself are: How much is your business worth? Are your expectations aligned with the market? And finally you will need to find the right buyer, who is interested in buying businesses in your market sector.
Essentially, selling a business is a complex and often lengthy process that requires expertise to properly manage. To ensure you get the right price for your business if nothing else! So please consider this before you list your business for sale.
2) I know what my business is worth
Some owners will base a business valuation on what they need for retirement, which isn't the right way to do it. Or they take their financial reports and try to estimate the value of their business based on multiples similar to those used for FTSE 100 companies. Again, this isn't the best way to value a business.
While there are relatively standard multiples for valuing SME businesses, the deal value achieved will depend on market conditions and operational factors such as the reliance on one key customer or the reliance on the business owner for generating new sales, as well as your company's growth potential.
Being confident that your expectations are aligned with the potential market is of the utmost importance in properly managing the negotiations and deal process and achieving the successful sale of your business.
Basically, getting a professional valuation of your business is highly recommended.
3) I am interested in selling my business but the process will take too long
You won't sell your business overnight. Or in a month. The simple, honest truth is that it takes time.
For example, you'll have to deal with the time spent weighing up offers for your business, to negotiating on the valuation and deal structure both parties agree to, as well as due diligence and the drawing up of legal contratcs, the transition time between owners and much, much more.
That doesn't mean, though, that the process has to take forever. At Hornblower, we sell around 80% of the businesses we take on within 12 months, out of which 30% are sold within 6 months.
What typically delays the successful business sale is lack of up-to-date financial information and over complicated legal discussion during the transaction phase.
The lapse of time increases the risk of the business metrics changing and so it is in the interests of all parties involved to make sure the deal completes as quickly as possible. The best way to ensure this is to be fully prepared before going to market. And your business broker can help you do that.
4) If I sell my business, the new owners will come in and change everything
This is an understandable concern which many business owners have due to their commitment to their business, customers and staff - people who, in many cases, have been with the company over many years and have helped the owner build the business.
Most owners don't want to see their staff lose jobs or see their business taken in a direction they don't agree with. The important thing to remember is that, while new owners will often have their own ideas for how to take the business forward, in most cases this won't see wholesale changes to the way a business operates and can often generate new and positive opportunities for the staff.
In addition, most buyers will be reliant on keeping the management team in place for as long as possible to maximise the current performance and profitability of the business. It simply wouldn't be in their interest to change things that are working well.
In making an offer to acquire a business, it is 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. Of course an experienced business broker will manage this aspect of the negotiations carefully.
We hope this has been a useful article. If you'd like to take a look at 4 more common myths when it comes to selling a business, then check them out here. And if you have any questions at all about the article, then please leave us a message using the contact form below.