Alongside, "how much money can you get for my business?" and "how much do you charge?" the next question on potential clients lips is often whether anybody is buying in the current market? The answer is a definite YES for the following reasons;
As economic conditions remain challenging then organic growth for companies becomes equally challenging and out of necessity, acquisitions more appealing.
There is no denying that funding (or the lack of) remains a key blockage for completing deals, particularly smaller ones, however if both sides are prepared to be flexible with terms then solutions are possible and deals are happening. Indeed, for the business that continues to perform well in current market conditions there is every chance of driving a premium from strategic buyers and/or buyers struggling to find good quality acquisitions.
Prices are standing up for the better performing business however our key mantra of good preparation remains central to driving best value from the sale process. Prepare your exit carefully, get your ducks in a row and go find that hungry buyer.
Thursday, 15 July 2010
Friday, 9 July 2010
Top 10: Do's & Don'ts when Selling Your Business
There is a bit of crossover here with an earlier blog article but the Top 10 below was part of a magazine article written some time ago and therefore re-produced for my blog reader;
1. DO plan exit strategy; DON'T overlook simple changes
Selling a business can be distracting and time consuming so plan your exit well in advance of going to market. Prepare paperwork, address any litigation or employee issues, anchor key employees, finalise contract negotiations etc. Don't let these problems emerge in the middle of a deal as buyers are easily spooked and poor preparation can play a role in putting them off. That said, don't forget the 80/20 rule so consider first the simple changes that can make the biggest impacts.
2. DO start the process close to year end; DON'T be lazy with numbers
Many sellers try to sell their business using poor quality or out of date financial information. There is little point taking your business to market with out of date information so think about selling close too or just after year end accounts are available. This makes your information current and credible. Don't be lazy and assume that accounts from 2 years ago will be sufficient. They will not.
3. DO research your route to sale; DON'T trust every advisor
Choosing the wrong advisor can destroy the value of your business just as much as a good one can enhance it. It's a critical decision so, if in doubt, create a beauty parade and treat with extreme caution the volume agents who promise much and deliver little. Their business model works for them and not for their clients.
4. DO understand the value in your business; DON'T bother with formal valuations
The market decides the value of your business so preparation and marketing are the crucial elements and not any pre-sale valuations which - particularly in the current market - are largely irrelevant. Particularly if they've been used as encouragement for you to sign up with an agent.
More important is to understand the real value drivers of your business; Is it the product range, location, contracts, order book, customer base, key employees? Concentrate on these areas as part of your preparation and marketing literature and avoid putting price tags on your business. Value can fluctuate enormously depending on the buyers motivations so drive competition, don't provide them with a guide price.
5. DO reduce owner dependency; DON'T expect to walk away immediately
A key concern when buying a small business is the amount of owner dependency in the management of that business so sellers need to concentrate transferring as much personal goodwill as possible into business goodwill.
Because of these concerns, buyers will often require a handover phase and/or deferred consideration that creates an ongoing physical and financial commitment from the vendor and helps reduces risk and uncertainty for the buyer. Anticipate an ongoing if short term relationship with your ex-business.
6. DO maintain confidentiality; DON'T hold on too tight
There is a balancing act between maintaining confidentiality yet providing buyers with the information to form a view about the opportunity and value. Provide some headline information (anonymous if necessary) but for anything more detailed or sensitive, insist on a confidentiality agreement or at least gain an understanding about what and why they need extra information. Instructing a professional advisor will provide you with that extra layer of expertise and protection.
7. DO believe in your business; DON'T get emotional
Selling a small business can become emotional for an owner who has often started from little or nothing. It's therefore important for the seller to maintain a detachment from the sale process and in turn help to inspire a buyer about the potential of their business, whilst stepping back from any negative feedback. Indeed, a seller should be candid with buyers about operational weaknesses so to encourage the latter about the opportunity and potential for 'quick wins' and added value.
8. DO cherish buyers; DON'T give them too much respect
Good buyers can be difficult to find however bad ones emerge quite easily. An unfortunate truth is that many are time wasters so sellers need to spot them asap to reduce aggravation. They can be spotted fairly quickly - they provide poor quality requests for information, fail to respond to messages and are often unwilling to sign up to confidentiality agreements. Cherish the good ones and discard the bad.
9. DO consider seller financing; DON'T blow deal waiting for cash
Buying a small business can be risky for a buyer. Many sellers fail to understand this truth and it sometimes blurs their thinking about what is and isn't a good deal. Chief concerns for a buyer include yoo much owner dependence and vulnerability of earnings so sellers need to be realistic and flexible in what terms are acceptable and fundable. Sellers might have to accept deferred consideration elements that help to bridge funding gaps and share some of the risk with a buyer.
10. DO instruct competent advisors; DON'T expect a smooth ride
The wrong professional advisors (solicitors, accountants, agents) can seriously damage the health of your deal. Choose carefully and ask about their previous experience in corporate deals. Completing a deal is often a bumpy ride with occasional setbacks, so you need to have a team around you with sufficient expertise and guile to help maximise and protect value.
11. DO include 11th item in top 10 list; DON'T forget to chill the champagne
Selling a business should be the ultimate reward for the risk and effort committed over many years. The process is often time consuming, distracting and emotional but when you do achieve completion, enjoy the moment and the champagne.
1. DO plan exit strategy; DON'T overlook simple changes
Selling a business can be distracting and time consuming so plan your exit well in advance of going to market. Prepare paperwork, address any litigation or employee issues, anchor key employees, finalise contract negotiations etc. Don't let these problems emerge in the middle of a deal as buyers are easily spooked and poor preparation can play a role in putting them off. That said, don't forget the 80/20 rule so consider first the simple changes that can make the biggest impacts.
2. DO start the process close to year end; DON'T be lazy with numbers
Many sellers try to sell their business using poor quality or out of date financial information. There is little point taking your business to market with out of date information so think about selling close too or just after year end accounts are available. This makes your information current and credible. Don't be lazy and assume that accounts from 2 years ago will be sufficient. They will not.
3. DO research your route to sale; DON'T trust every advisor
Choosing the wrong advisor can destroy the value of your business just as much as a good one can enhance it. It's a critical decision so, if in doubt, create a beauty parade and treat with extreme caution the volume agents who promise much and deliver little. Their business model works for them and not for their clients.
4. DO understand the value in your business; DON'T bother with formal valuations
The market decides the value of your business so preparation and marketing are the crucial elements and not any pre-sale valuations which - particularly in the current market - are largely irrelevant. Particularly if they've been used as encouragement for you to sign up with an agent.
More important is to understand the real value drivers of your business; Is it the product range, location, contracts, order book, customer base, key employees? Concentrate on these areas as part of your preparation and marketing literature and avoid putting price tags on your business. Value can fluctuate enormously depending on the buyers motivations so drive competition, don't provide them with a guide price.
5. DO reduce owner dependency; DON'T expect to walk away immediately
A key concern when buying a small business is the amount of owner dependency in the management of that business so sellers need to concentrate transferring as much personal goodwill as possible into business goodwill.
Because of these concerns, buyers will often require a handover phase and/or deferred consideration that creates an ongoing physical and financial commitment from the vendor and helps reduces risk and uncertainty for the buyer. Anticipate an ongoing if short term relationship with your ex-business.
6. DO maintain confidentiality; DON'T hold on too tight
There is a balancing act between maintaining confidentiality yet providing buyers with the information to form a view about the opportunity and value. Provide some headline information (anonymous if necessary) but for anything more detailed or sensitive, insist on a confidentiality agreement or at least gain an understanding about what and why they need extra information. Instructing a professional advisor will provide you with that extra layer of expertise and protection.
7. DO believe in your business; DON'T get emotional
Selling a small business can become emotional for an owner who has often started from little or nothing. It's therefore important for the seller to maintain a detachment from the sale process and in turn help to inspire a buyer about the potential of their business, whilst stepping back from any negative feedback. Indeed, a seller should be candid with buyers about operational weaknesses so to encourage the latter about the opportunity and potential for 'quick wins' and added value.
8. DO cherish buyers; DON'T give them too much respect
Good buyers can be difficult to find however bad ones emerge quite easily. An unfortunate truth is that many are time wasters so sellers need to spot them asap to reduce aggravation. They can be spotted fairly quickly - they provide poor quality requests for information, fail to respond to messages and are often unwilling to sign up to confidentiality agreements. Cherish the good ones and discard the bad.
9. DO consider seller financing; DON'T blow deal waiting for cash
Buying a small business can be risky for a buyer. Many sellers fail to understand this truth and it sometimes blurs their thinking about what is and isn't a good deal. Chief concerns for a buyer include yoo much owner dependence and vulnerability of earnings so sellers need to be realistic and flexible in what terms are acceptable and fundable. Sellers might have to accept deferred consideration elements that help to bridge funding gaps and share some of the risk with a buyer.
10. DO instruct competent advisors; DON'T expect a smooth ride
The wrong professional advisors (solicitors, accountants, agents) can seriously damage the health of your deal. Choose carefully and ask about their previous experience in corporate deals. Completing a deal is often a bumpy ride with occasional setbacks, so you need to have a team around you with sufficient expertise and guile to help maximise and protect value.
11. DO include 11th item in top 10 list; DON'T forget to chill the champagne
Selling a business should be the ultimate reward for the risk and effort committed over many years. The process is often time consuming, distracting and emotional but when you do achieve completion, enjoy the moment and the champagne.
"Doh" Client Moments
Top 5 client comments during meetings with potential buyers;
1. "Losing that big client really motivated me to sell"
2. "I heard a lot about you, all bad"
3. "Wife runs the books but happy to include her in the sale"
4. "I'd never sell to a man wearing slip on shoes"
5. "Why don't we cut out the middle man?"
1. "Losing that big client really motivated me to sell"
2. "I heard a lot about you, all bad"
3. "Wife runs the books but happy to include her in the sale"
4. "I'd never sell to a man wearing slip on shoes"
5. "Why don't we cut out the middle man?"
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