For most business owners, selling a company is a once-in-a-lifetime opportunity to hand over their life’s work. As a business broker, it’s a joy to see and speak to business owners who have achieved their goals and aspirations and sold their successful businesses and headed towards a new phase in life.
When business owners have sold up I like to ask them this question: ‘From your experience of going through the sale process, what advice would you give a business owner who is looking to sell their company?’
Here are 10 of 20 nuggets of advice from those business owners:
1. Sell before you need to.
‘Oh, I wish I had sold earlier’ is a phrase I have heard so many times. Many owners hold onto their business far too long. Some had been caught by surprise by market legislation changes or decline, others by competitors taking market share or key staff. All these reasons and more resulted in these businesses being less valuable and less attractive to the market. As a business owner, you are in the strongest positon when your business is going well and you don’t have to sell.
2. Seek advice well in advance of selling your company.
Understanding the process is key. What will drive value? What will detract value? What are potential barriers to exit? How do you position your company to maximise value and complete your sale as quickly as possible? The due diligence process is often a lot more rigorous and intrusive than most realise and you must be ready for it. The holes are easy to identify but it’s the cracks that often concern a buyer and result in a deal protracting or failing altogether.You must know how ready your business is, or isn’t, for sale. Find out by having an Exit Health Check with a reputable adviser well in advance of your sale. Even if it’s only them confirming you are doing everything right, at least you know you are track.
3. Remember, you still have a business to run during the process
Make sure you don’t take your eyes off the ball. You must carry on running your business like you were never going to sell it. Of course, you will need to nominate a champion in your business to work with your sale advisors, make sure directors are focussed on the business and ensure you use an adviser who will drive and lead the process on your behalf.
4. Make sure your deal is as frontloaded as possible
If you have explored the sale process, you may have come across the term ‘Earn Out’. The process tends to go something like this: you agree a value (sale price) for your business with a buyer. However, only some of the value is paid on completion. The remainder is paid in instalments, traditionally with some conditions based on the future performance of the business.
Although earn outs can be risky, don’t discount them. They can be good for you, the vendor, especially if you are confident in your future performance. It can give your buyer confidence that you are also taking risks alongside them. If you outperform the initial expectations, the rewards can sometimes be even better.
The key is to ensure that you are comfortable with monies that are paid on completion and confident in the performance of your business going forward if your deal is structured in this way. That’s where having a good lawyer will make a big difference.
5. Ask more than one advisor what they think your business is worth
We totally agree here. Just last week, we met a business owner who had unfortunately been lured by an over-inflated valuation and had contacted EH to receive another opinion. We looked at the business, including the risks and the opportunities. We quickly came to the conclusion that the valuation was inflated to help our competitor win the mandate to sell this company. Interestingly, when we gave our view, the owner said that they didn’t believe what the other broker had told him.
A business is worth what someone is prepared to pay. However, you must be realistic and compare apples with apples. Just because one of your competitors sold out five years ago for what appears to be a huge multiple sum or the broker claims their average multiple is 7-10 x, this, doesn’t mean they will achieve that with the sale of your company.
The value of your company will ultimately be dependent on the opportunity, the risks and the future potential a buyer sees in your company.
6. Selling a business is stressful
You have invested years in your business. For many entrepreneurs, the hardest part isn’t preparing the business for exit or even finding interested parties to buy. Letting go of something that has been your life for 25 years is not always easy.
The stressful part is often during the negotiations, due diligence and the concluding stages. Not taking feedback too personal and making sure you are fully open with your advisers early on regarding issues or risks in your business is key.
Make sure you are well prepared for the process and have advisers who run it for you. This will significantly reduce your stress levels.
7. No business is perfect
While no business is perfect, don’t use this as an excuse for lack of preparation. You must prepare your business before you market it for sale. Reducing risks in the business will help you maximise the price. The lower the risk, the higher the price. The opposite applies – the higher the risk to a potential acquirer, the lower the price.
We don’t suggest you spend years attempting to make your business perfect, you never will. But spending a few months with advisors who know what is important is highly recommended. We often use the analogy of selling a car. Before you market your car for sale, most owners will ensure it’s well serviced and valeted. The same applies to a business.
8. Make sure you have an adviser who will work on the deal for you
Using an adviser enables you to concentrate on running your business while the adviser focuses on the sale. An experienced adviser will keep the sale confidential and drive the process to maximise value. Most advisers work on a smaller retainer and percentage of the successful sale price is where they make their money. Therefore, both of your
interests are aligned, ensuring the best possible price and terms are achieved. Your business broker should be able to create options for you, ensuring there is more than one offer on the table, providing you with a choice.
9. Seek tax advice
Selling your business may well be the biggest financial transaction of your life. You will naturally want to maximise your return on sale and a key part of this will be trying to minimise the tax you and shareholders need to pay. This should be part of the preparation process you discuss with your adviser.
10. Use a good corporate lawyer
Finally, selling your business is not a job you should at.tempt to do alone. Engage with a broker and, most importantly, a good corporate lawyer who has experience of transacting deals. Structure their fees so that they are aligned with your interest of getting the deal completed as quickly as possible.
Selling your business is something you’ll probably do only once in your life, so get it right first time and talk to a team who will support you through the process.
Why not attend one of our FREE events – ‘The Right Way to Sell a Business the Vital Steps to Build Shareholder Value’
Alternatively would you like to talk? Please call us on 0845 0678 678 or email us now to book a date for a confidential call to discuss your situation at [email protected]
