I negotiate the acquisition or disposal of a large number of companies and businesses for clients every year. It's one of the things I am best known for. Something I am often asked is: 'what is the best way to sell a company?'
Here is my advice:
Don't be greedy
I have come across too many owners who have hung on for far too long and have missed the boat. Remember the buoyant years before the crash of 2008 when the west's economies were booming and asset prices were rising? I do.
''I'm going to wait for another year and then I'll sell,'' is a comment I heard more than once. No one can predict the top of the market. Or the bottom. And, anyway, when prices start to get a bit frothy, that's when lending banks start to get a bit nervous. That's also when a buyer's funding can become difficult to finalise. It's never wrong to take a profit. So, my advice is, sell well before you think the economy has reached the top of a cycle. Otherwise, you may never get another opportunity.
Anno domini catches up on all of us
Many of us think we are invincible and we will live forever. Sadly, it's not true. Too many business owners sell because they have to - often because they are approaching retirement and the buyer knows they have no succession plans in place. Or, because illness strikes. A buyer rarely pays top dollar when the seller's back is against the wall. So, don't hang on forever. However enjoyable business is, there is life beyond it.
Prepare your exit in advance
Very few businesses are oven ready to sell. Most owners are too busy juggling multiple balls at once to deal with the small stuff: building turnover and profit, looking after liquidity, dealing with good and difficult customers, recruiting and off-loading staff and planning new products and services etc. Too often, owners don't have time to tidy up contacts, ensure T's & C's are up-to-date, protect IP, etc. But those are the things a buyer's advisers will focus on. So, if everything isn't in apple pie order, you can bet your bottom dollar the price will be reduced at the last minute.
A seller should plan its exit well in advance. Instruct someone experienced to do a legal audit to ensure a buyer or its advisers can't find a justification to reduce their offer price as you are walking down the aisle.
Sort out your accounts. And your tax
A prudent buyer will instruct its accountants to undertake a detailed financial due diligence exercise by examining your last few years' accounts and tax returns. Have your doubtful debtors been written off? Is some of your stock unsaleable? Are there any warranty claims in the pipeline or disputes with customers or suppliers? Have you put some personal expenses through your accounts that the tax man might challenge? Is your PAYE, VAT and NI up-to-date? It's much better to deal with these things before your buyer's advisers find them, because once they do, they will keep digging in the expectation of uncovering something else.
Show me the money
If the offer looks too good to be true, it usually is. Don't be seduced by a tempting offer from an unexpected source that isn't backed up by an independent proof of funding. And, do your due diligence on your buyers. Do they have the funds? Can they prove it? Don't be embarrassed to ask for proof. Some buyers will string a seller along until they are boxed in and have no option but to accept a vastly reduced offer at the last minute. Don't get caught by that trick.
Get some advice to determine the value of your company.
There is more than one way to skin a cat. And to value a business. Don't get sentimental about it - an experienced, independent third-party valuation can provide some sanity into what your business is really worth. Are profits on an upward curve? How intense is the competition? Is the business over-reliant on the seller's personal contacts? Is the sector expanding or contracting? Does the business own the intellectual property it uses? How reliable is its customer base, etc? These are only some of the factors determining value. And, remember, a buyer is usually, only acquiring your business because it thinks it can do even better with it than you. So, your valuation might be calculated on a completely different footing to a buyer's.
Are you over reliant on a small number of customers
No matter how loyal you think your customers are, a buyer might take fright if it thinks you have too many of your eggs in one basket. Generally, if a single customer represents more than about 20 percent of sales, a prudent buyer will value your business lower, on the basis that if the customer were to leave, it might be catastrophic. So, try to ensure you have a diversified customer base.
Do you know who your buyers might be? Find a business broker.
Most business owners know their customers, but maybe don't know who might want to buy them. That could be a reason to consider outside help with finding a purchaser. A good corporate finance firm or a business broker will talk to you about who your prospective buyers might be. And they will also do their own research. They will probably prepare a prospectus to be sent to prospective buyers. Might your customers or suppliers be interested in buying you? What about your competitors? Are members of the management team potential buyers? Good corporate finance experts and brokers can also help buyers with financing options.
These are only some of the issues a business owner might have to consider before selling. If you are considering an exit, contact me. I believe I can help
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