Many business owners will, at some stage, entertain the idea of selling their business. The reasons for sale will vary, from releasing value for their retirement to wanting a new challenge, but in most cases the business can account for a large proportion of the business owner’s overall wealth, and the timing of a sale, more than any other factor, can be critical.
Our view is that the best time to sell a business, and to maximise value, is a time when the business owner wants to sell, rather than when he or she has to sell.
Too often however, the discussion about a sale will be deferred because the owner is too busy, or just not ready to sell their business. Alternatively, there may be circumstances beyond an individual’s control which may force them to sell their business quickly, for example, ill health, disputes or divorce. The result in those cases is typically a lower sales price than initially hoped for.
Any exiting business owner needs to approach the sale of their business with their “eyes wide open”. Preparing a business for sale is key, if the value is to be maximised. Likewise the business owner should be well prepared, to understand the sales process and what will be required of them.
A sale will take time to organise therefore starting to prepare early will give rise to less complications and more options when the sale process gets underway. Choosing a time to sell which suits you, when numbers are hitting their targets and the cash position is maximised, will be beneficial in achieving a higher price for the business.
A sale process can be demanding on the owner’s time. It is always beneficial to build a small team of internal and external members that can share the burden, whilst maintaining confidentiality of the transaction. It is important that the team remains motivated whilst they deal with the additional workload.
A potential buyer will spend time reviewing the history of a business and conducting their due diligence procedures. Financial information, often going back three years or more, is likely to be requested and quality, well prepared information will provide the buyer with confidence in the business. On the other hand inconsistent or erroneous management information can cause confusion and can cause deals to fail or for the price to be ‘chipped’ away.
It is also worth considering what will be important to a buyer such as having agreements in place with customers, suppliers and key employees. Ensuring that these agreements are in place during the normal course of business can reduce any unnecessary complications.
Potential buyers may also want to understand how the business will continue to operate effectively when the exiting owner is no longer in position. Planning for succession is therefore critical, and a strong, incentivised management team will go some way to allay those concerns. However, a handover period is also often required by a purchaser, with few owners afforded the luxury of walking away immediately upon completion of a deal.
Doing the right deal
We have a strong track record of assisting our clients complete deals but not all sales processes will be successful. Industry statistics indicate that three-quarters of deals fail. Getting the right buyer at the right price can take time, and often requires a proactive search. The business will ultimately be worth what the highest bidder is willing to pay, and frequently there is gap between the offer and the Sellers expectations.
It can be the case that deals fail because the owner’s has unrealistic expectations of value, an owner being unprepared, or underestimating sale time.
Seeking expert advice on the likely valuation of the business upfront will improve the chances of a successful sale. An expert team should have experience of recent deals to underpin and defend the valuation of the business. Serious purchasers will tend to have their advisory team so it is necessary that Sellers are similarly prepared. Advisors will also add value by being able to handle the process, allowing the owner to focus on maintaining business performance.