Selling your business?
Are you thinking of selling your business? Have you considered the many and varied steps involved? The professional help you might need? The time it will take?
Selling your business will likely be one of the more time consuming and stressful ventures that you will take on. It might take a lot longer than you imagine and you will likely need assistance from professionals knowledgeable about the process and its pitfalls
The average time for an SME deal to complete is between 6 and 12 months. The trick to minimising the burden and increasing the chances of a successful deal is in the preparation. This should be undertaken before going to market.
Preparation for a business sale is about getting your house in order. Are your last 3-5 years statutory and management accounts clear and in a format ready to be shared with a prospective buyer? Have the accounts been audited? Whilst not essential this is a good idea as it will give the buyer confidence in the accuracy of your historic financials.
Do you have budgets, forecasts, cashflow information ready to share with a buyer? These are the types of things a buyer will want to see early in the process. Are all of your contracts with clients and key suppliers signed and in good order and ready to hand? The same with your leases? Are all of your employee contracts signed and any disputes resolved? All these things should be in good order before seeking a buyer and this can take many weeks of preparation.
It is a good idea to have a realistic valuation of your business before you enter any negotiation. Many deals have been delayed and fail completely by sellers placing an unrealistically high valuation on their business. This is perhaps not surprising. Selling a business is an emotional experience. No one has put as much blood and sweat into it as you. There are several different approaches to valuation. The most common is applying an industry P/E multiple to the business’ earnings (EBITDA). Other approaches include a multiple of sales, discounted cash flows, balance sheet valuations or industry rules of thumb. A valuation by an independent expert will ensure you get it right and don’t jeopardise the whole process by going in too high. You can get a free indication of the value of your business through our platform by clicking here: How much is my business worth?
Will a share sale or an asset sale provide you with the more profit?
You should also understand what deal structure is best suited to you so that when the time comes to negotiate a sale, you can do so from a position of knowledge and strength. Will a share sale or an asset sale provide you with the more profit? The chosen route can have significant impact on whether, for example, Business Asset Disposal Relief (formerly entrepreneurs’ relief) will be available to reduce the tax burden on the sale. This will make a very significant difference to your net proceeds.
Finding a Buyer
Getting your house in good order can take many weeks of work. When you are ready to go to market, you must then decide whether you wish to use a business broker to help find the right buyer. This may be helpful as a way of introduction to potential buyers although you will of course have to pay a fee for this service. Alternatively, you may feel you are sufficiently connected to be able to find the right person yourself. Regardless, you should be front and centre when it comes to promoting the business. No one is more passionate and knowledgeable about your business than you. When you find the buyer, you are likely to need a finance expert to help negotiate the right deal structure for you and a good lawyer to ensure that you are signing the right agreement. You will also need advice around confidentiality and protecting your intellectual property, probably by means of a non disclosure agreement.
Once a potential buyer has been found and the negotiations commence is when the really hard work begins. The due diligence process carried out by the buyer will typically include a detailed review of your corporate structure and its legal documents, a review and understanding of any financing taken out by the business, a close look at client contracts, supplier contracts, leases, employee contracts, insurances, intellectual property, ongoing litigation, a detailed look at your business’ tax position and any other areas a prospective buyer feels might pose a risk to them if they buy the business. These areas must all be in good order and documents/information ready to share. Unnecessary delay is a common reason for deals to fail.
Due diligence is the most difficult and stressful part of the process. It is when some of the hidden aspects of your business are uncovered and you open your business to close scrutiny. The buyer will use any bad news to chip away at the sale price or in the worst it can case cause them to withdraw completely. This is when you reap the benefits of good preparation because you will have reduced the risk of any nasty surprises. So make sure that any skeletons have been cleared before you enter the due diligence process.
Once you have dealt with the due diligence process and there is a deal to be concluded, there will be much time liaising with your appointed legal expert with the drafting of the Sale and Purchase Agreement.
Deals can easily take 12 months to complete. It is important to remember that the trading performance of your business has to be maintained throughout this period. You cannot afford to take your eye off the ball. You can be sure that if you allow yourself to be distracted by the long and complex sale process and your business profits fall, a prospective buyer will use this as an excuse to chip away at the price. Making sure you have the right people around you who can deal with much of the aforementioned process will help you avoid this problem.
Selling a business is one of the most complex, time consuming, stressful and emotional experiences a business owner will go through. The help of experienced professionals, familiar with the process and its pitfalls, will ease the burden on you and allow you to maintain focus on your business through it all.
Our team of Delivery Directors have helped sell numerous businesses, including many of their own. It’s never too early to start preparing – get in touch today to start turning your plans in to reality.