Selling your business can feel like selling part of your body, it’s in the blood. You’ve invested piles of hard-earned cash and countless hours of time and sheer bloody-mindedness so now it’s your turn to collect. In fact, statistics show 60% of us will soon be back running another operation and a further 10% only sell because they’re taking retirement. Whatever the case, though, everyone wants the optimum price and, for many, the assurance that their business – and its reputation – will remain in good hands.
Selling your business successfully needs a delicate balance of thorough preparation, judgment and perseverance. Stressful? Complex? Eventful? Yes, but time it right and you’ll know you’ve done your homework to get the best possible deal.
Knowing what you want to achieve backed up by expert advice are two of the key factors in producing an exit strategy. And you can only do this with a strong management team in place. A business that relies heavily on one person can never be a good sales line.
Timing and step-by-step preparation are crucial in presenting your business in the best light. What is the financial climate, what are the latest market trends? Give yourself at least a year, preferably two, to get your finances crystal clear (five if you are retiring). Iron out any gaps in managerial responsibilities, build up client lists and work with independent advisers such as CBW to produce a sound future business strategy to maximise potential profits for the buyer.
At CBW, we structure a deal to succeed over time, stressing the need to take a smooth-running operation to market. We can provide early assessment and business grooming to ensure your company is in peak condition to attract the best buyers. And we can run the deal while you and your management team continue to focus on running the business.
Is it to a third-party entrepreneur, a business focusing on diversification, a current rival or maybe to people you know through a management buyout? Maybe you are focusing on foreign investors, an area where our membership of DFK, an international network of accounting and business resources, enables us to give you valuable local knowledge and access to overseas buyers.
The main methods used to sell a business are:
Outright sale: a simple solution if you want to make a complete break, but do you want to sell just your company’s assets – eg equipment, client list, goodwill – which could mean any previous snags may come back to haunt you as the previous owner. Or do you sell your shares which means the buyer carries full responsibility for everything?
Structured earn-out: if you value your business higher than your buyer, an earn-out can be used as a safety mechanism for both parties. You agree to stay with the company for a certain period, and if it performs to a certain level or more, you will earn more profit from the sale. If it performs below expectations of the new owner, you’ll earn less. A useful compromise but do take advice from your accountant.
Business Listings: simply advertise your business for sale on online companies for sale listings, include as much information as you wish, and wait for enquiries.
Management buy-out: when existing staff buy your company. The whole process can be speeded up as there is little need for due diligence – the buyers know the business inside out – and you only need offer them a minimum warranty as they will know the state of the company as well or better than you do! We at CBW have extensive access to providers of capital (eg private equity investors) – something managers will generally lack – and can help you secure the best deals, particularly when negotiating with buyers with inside knowledge. This is critically important where deals include longer term and performance based payment terms.
Management buy-in: when a manager or management team from outside your company.
And don’t forget the Bimbo (buy-in management buy-out) – a combination of a management buy-in and buy-out!
Just like doing an inventory for house insurance, valuing your business is a precise process needing patience and skill to quantify intangibles such as goodwill and intellectual property. Add in items such as existing stock and current projects, effects of future obligations, your staff’s ability to run the business in your absence, staff retention and incentive schemes. Is your business unique, what’s the strength of your brand, what about scaleability (could your business expand nationally?).
Only once you have a valuation is it time to start getting ready for market. CBW can help ferret out the elements that will help and hinder your saleability. Have you any contracts in the pipeline that need completing, any gremlins that need removing? Is your management structure water-tight?
When you have found a suitable buyer, you can’t sit back. Not only will a potential new owner do a detailed due diligence check but so should you. You need to anticipate and put right anything before they find it. CBW can help you produce your own due diligence pack to reassure the buyer that there are no elephants in the room. And always ensure you have at your fingertips a thorough analysis of past profits and invoicing, and a full review of your company’s tax affairs, Don’t ignore your own future wellbeing either so check that you are not vulnerable to future unexpected inheritance tax claims after the deal is done.
Do let your staff know what you are doing in good time. Treat your most valuable resource with care. There is nothing worse than a workforce demoralised by thoughts of an uncertain future and redundancies – just before Christmas.
If you’re planning an exit strategy and are focused on selling your business, talk through your options with a corporate finance expert at CBW first.