Fri 22nd November 2013
The reason for sale is one of the first questions asked by buyers and it can have a major impact on the sellability and value of a business. If the reasons do not stack up, it can give the perception that the seller is selling because the business is in trouble.
In deciding whether to market your business for sale, it is important to understand what you would like to achieve, not only monetarily but what you would like to do post sale – when you are no longer in charge of your company.
In general the reasons for selling a business are one of the following:
1) The natural business cycle
2) Change in personal circumstances
3) Serial entrepreneurs looking to build and sell
From our experience in the IT support and telecoms sector, the most common reason is the natural business cycle.
Why? Because owners of technology led businesses tend to be younger. The driver for sale is when the business reaches certain tipping points on the growth curve. Typically this is when the turnover reaches £500k, £1.2m and £5m.
At around £500k, the founding directors start to have to extract themselves from the service provision side of their operations and focus on team management and building sales to support the team. If sales do not continue to grow significantly, the company lacks critical mass to cope with client and/or staff churn and the business stagnates. Joining a larger organisation gives the business that critical mass and takes the burden off the owner’s shoulders.
At £1.2m, owners have to put an operational manager in place to run the service provision team. To continue growing, they need a dedicated business development manager/account manager to keep the current client base happy. They also need to put in place good financial management and credit control systems and staff. This is the tipping point where the business is no longer “lifestyle” orientated. Joining a larger organisation or bringing in new experienced business owners takes the responsibility off the founder’s shoulders and enables the financial investment required to take on the more senior staff and increase the marketing budget.
At £5m+, the company comes on to the radar for mid-sized (£10m-£50m) trade buyers and private equity firms looking to build mid-sized groups. For companies that reach this point, this has often been the initial long term plan. They have a management team in place and have good prospects for continued growth but with a number of avenues to choose from.
One other reason for sale that is not uncommon is disagreement between business partners on how or whether to grow the business. Despite good intentions and friendships at the beginning, business partners often develop different aspirations and/or financial needs from the business, which can lead to serious tensions between the partners. If one cannot buyout the other, then the best option is to sell before the business is affected.
Has your IT support / telecoms business reached any of these tipping points?
We would be delighted to offer you a free appraisal of your business to give you guidance on its value and attractiveness to buyers, and whether now is the right time for you to sell. Our appraisal can take the form of either a face-to-face meeting or a telephone call, as you prefer.
Please contact us on 020 8090 9380, email [email protected], or complete the form below to arrange an appropriate time to review your exit strategy and the value of your business in confidence and without obligation.