Selling a business – 4 common myths
In meeting and talking with business owners, we often come up against certain preconceptions on the process of selling a business. Here are just a few examples:
1) I can sell my business myself
Some business owners believe that they can sell their own business by themselves. But selling a business is not like selling a regular product or service or even a house. 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.
Selling a business is a complex process; clearly you need to find an experienced business broker.
2) I know what my business is worth
Some owners will base the company value on what they need for retirement. 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. Whilst there are relatively standard multiples for valuing SME businesses, the deal value achieved will depend on market 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 market is of utmost importance in achieving a successful sale of your business.
3) I am interested in selling my business but the process is bound to take too long for my needs
At Hornblower we sell over 70% of the businesses we take on within 12 months, out of which 30% are sold within 6 months. What typically delays the sale process is lack of up-to-date financial information and over complicated legal discussion during the transaction phase. The lapse of time kills deals and so it is in the interests of all parties involved to make sure the deal completes as quickly as possible.
4) I suppose if I sell my business to you, you’ll come in and change everything?
An understandable concern which many business owners have due to their commitment to their staff, people who have helped the owner build the business over often many years. Clearly all buyers will have their own ideas for how to take the business forward, but in most cases this is a positive opportunity for the staff.
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. And it is not in their interest to change things that work fine and are profitable. It is true to say that many acquirers will bring in new products, platforms and suppliers, but usually it is not a big change for whole company. 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 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.