They say that hindsight is a wonderful thing. Looking back on an experience and realising all the things you could, or should, have done differently! But what if you were able to take advantage of some of that hindsight before embarking on your journey? At Entrepreneurs Hub, our purpose is to give our clients the best chance of selling their business correctly – first time around. With this in mind, we often ask business owners we have worked with what advice they would give to someone just starting to consider their own business sale process.
Over the next few weeks, we will be looking at these ‘nuggets of wisdom’ and trust they will give you some help when it comes to your own journey. Here is part 1:
“Seek advice well in advance of selling your company”
I like to get out on my bike when I can to keep fit and to enjoy the fresh country air. When cycling, especially on back roads, one of the main obstacles to watch out for is potholes. Large potholes are easy to spot and navigate around – it’s the smaller ones that are much trickier, especially if they catch you unawares.
It is the same when selling a business – the smaller cracks or holes are the ones that can end up derailing the process. Getting good advice early on will help you identify and deal with any potential issues before going to market and entering a due diligence process where the acquirer’s advisers are paid to leave no stone unturned to enhance their negotiating position.
“Ask more than one adviser what they think your business is worth”
How do you value a business for sale? This is a very natural question to ask when you are thinking about selling what might be your greatest asset. You want to know what you might achieve, but the answer is not always that straight forward. Firstly, be sceptical about any adviser that gives you a single figure rather than a range and who someone hasn’t analysed your numbers properly.
Unfortunately, some business brokers will flatter you with high valuations and dazzle you with past successes that are years out of date. We often meet business owners who have been given an inflated valuation so we would agree wholeheartedly with the advice to get more than one opinion.
Remember that your business will be worth what someone is prepared to pay for it which is, in turn, dependent on their means and motives for acquisition. This is always the unknown variable and the reason why you shouldn’t put a price on your business when you take it to market. Every business is different, and every time is different, even for competitors in the same space. Potential valuations need to take this into account.
“Make sure you have an adviser who will work on the deal for you”
Broadly speaking there are two types of business broker with two different approaches to selling a business. The first will advertise your business, maybe approach the usual suspects, and wait passively for interest to develop. They will take the credit when the deal goes through, but you will have done a lot of the leg work. These advisers are normally the ones claiming they have a database of thousands of acquirers waiting to buy businesses. Unfortunately, what they don’t tell you is that it will generate a lot of wasted time and contact from buyers looking to buy your company on the cheap.
The second and most effective type of business broker will be highly proactive. They will put a lot of work into preparation, maintaining confidentiality, identifying a highly qualified range of potential acquirers to approach, producing high quality documentation, and employing experienced negotiators backed up by a qualified team to guide and support you through the complete journey at every step. This will result in driving the sale for maximum value, on the best terms, to the right buyer. This type of broker will have a fair, results driven fee structure, where they will only make a profit from a successful sale of your business. Normally a retainer fee is charged to employee the project team with an agreed percentage commission on completion of the sale, meaning their interests are aligned with yours and ensuring the best price and terms are achieved.
“Preparation is key to success”
If you are selling a car, you know that you are likely to sell it quicker and achieve a better price if the vehicle is fully serviced and valeted beforehand. It is no different for a business. Preparation is key if you want to maximise value, sell first time, and move things quickly. Work with an advisory team who will help you properly prepare for the sale process ahead and position the business in its best light from a commercial, financial, and legal perspective.
“Remember, you still have a business to run during the process”
This is a good place to end part one of this series. Selling a business does not happen overnight. To do it properly takes time, and, while all of this is going on, it is imperative that you continue to maintain and run the business. Having a trusted corporate finance adviser on your side to drive the sale process will help, but both things will need your attention. Ensuring you still have a successful business to sell at the end of the process will ensure you get the value you deserve.
I hope you have found these basic tips helpful. If you would like to speak to me or my team about any of the points raised in this article, please get in touch. We would be very pleased to speak with you about your plans and how we can assist.