Category: Helpful tips for SME's | Preparing to sell a business
Fri 22nd June 2018
At Hornblower we sell over 80% of the business sale assignments we take on. Most of these are sold within 12 months of our starting our marketing campaigns, a third are sold within 6 months. And we have now sold all, that’s 100% of the business sale mandates we took on in 2016.
Whilst a large part of our success in achieving the best deals for our clients is based on our meticulous, senior consultant led, researched approach, another key element is selecting attractive businesses to work with.
So, we have been looking at the other 20% of businesses that have not sold and the reasons why?
Whilst some have the common problems of over reliance on one key customer, dependence on the owner or lack of up-to-date financial data, there is another common trait: the owners are over 70 years of age.
You might think that this demographic would have the most incentive to sell their businesses and realise the value of the asset they have built up over the years, but this does not seem to be the case.
There are a number of factors which impede these sales, here are just a few:
- Many business owners retain their vigour well into their 70’s and 80’s – running their business keeps them young. There is perhaps a reluctance to let go and the question of what to do if they don’t have a business to run?
- A reluctance to let go can also lead to a mistrust of the buyer’s intentions and ability to run the business, particularly when a portion of the deal is subject to an earnout clause or deferred payment.
- The business has become stagnant as the owner has sought to reduce their day-to-day input and has been reluctant to re-invest in the business. Key staff have also aged thereby compounding the succession issues, and the business has become less responsive to customer demands and sales have slowed. Clients have perhaps aged too putting the sustainability of the business at risk.
- Lack of financial planning for retirement. The business has done well over the years and the owner has always assumed that the value of the business will fund their retirement. Unfortunately, in some cases the value of the business by that time, is not enough to match their needs.
So, what should we conclude from this?
For buyers, an understanding that any offer must be kept simple with minimal deferred or “earn out” payments. It is in the interests of both parties that the handover period is short. This may reduce the value a buyer is prepared to pay, but it gives the vendor clarity and surety over what payment they will receive.
For sellers, start planning your exit well in advance and whilst the business is still vibrant. Bring younger members of staff into your management team and be aware that if you do not sell your business earlier in life, then you may need to re-invest time and resources to keep the business running successfully later in life. Finally seek professional advice to ascertain your financial needs for retirement.