Tips on selling your business
Unlike running the business day to day and selling the products and services of your business, selling your business is something most business owners do only once. That makes it difficult as there are, as with so many sales processes, many challenges to navigate. In this article, I'll share a few tips (opinions not rules) that might just help you navigate this critical process better.
Start with the end in mind
Apologies for stating the obvious but the point of a business exit usually appears obvious, but actually objectives can differ in important ways that affect your next steps. So it's essential to define your goals - what you really really want to achieve from the sale?
Are you looking for a comfortable retirement? Do you want to invest the proceeds in a new venture? Are you prepared to continue working for the new owners? How long for? Or do you want your family involved? How? Having a clear understanding of your motivations will help you make informed decisions throughout the process.
Take care with brokers and corporate finance houses
While professional advisors are essential and do add value, as deal makers they nearly always have a tight focus on their own interests. So do use them but tread carefully bearing in mind the following points.
Get references from their most recent clients, whom you can also ask for their top tips on the structure of their deal, if they would use their lawyer/accountant again, etc.
Don't rely solely on them to find buyers for your business. Take the time to research your industry and adjacent industries to identify potential acquirers. You may be surprised at the companies that are interested in buying your business. If you find a company you feel is a good strategic fit, contact them yourself, even if under an assumed identity and then utilise the brokers to help get the best price. It may be frustrating to be helping the expensive advisors to do their job, but you do want the best deal!
Company brokers
Are only interested when you fit their criteria, i.e. they will make enough on the sale. You can waste a LOT of time educating them on your business, who the ideal purchaser prospects are etc. but when it comes to them DOING something, they’ve lost interest/fail to deliver/have forgotten everything you’ve told them. In the meantime, you’ve probably paid them for producing an information memorandum and spent a lot of time re-hashing their standard purchaser list for your sector. While all this is going on, your ideal purchasers may have made other arrangements.
Accountants
If your accountants have a corporate finance team they are an alternative. Bear in mind they are accountants, not marketers or business strategists. They will say that they will do research but probably don’t understand the strategic buyer so will probably start with your own industry including your competitors. They may approach potential purchasers personally, but this is unlikely to happen unless they strike lucky with a mail-out to the list and get a response to follow up. Left to their own devices, they will splash the teaser document to their email list and wait for someone to bite.
Specialist corporate finance boutiques
Will always ask how much you want for the business, before giving you any indication of what you could expect, or doing any valuation. This figure, which you may have plucked out of thin air: based on your required income from the proceeds: based on the company’s assets etc., before you know it, becomes written in stone. Anything realised above this figure, attracts a much higher percentage for the Corporate Finance House. E.g. you suggest £10m is reasonable, Corporate Finance House fees start at 3% on £10m but quickly rise to 7% on £12m etc.
Be open, honest and transparent
Take care to be precise in what you say throughout the negotiations with the purchaser, because they will capture it and put warranties in force. Anything which does not turn out as expected for the buyer will come back to bite you. Bear in mind though there may not be a requirement for the purchaser to be open, honest and transparent with you.
The disclosure letter
This provides additional information on subjects not covered in the agreement, e.g. up to the minute developments on suppliers, customers, staff etc. which may affect the business. Disclose as much as is practical in case anything goes wrong post sale. If you didn't disclose something that later proves costly, they will claim against you.
Beware of the prospective purchaser using your team
If the purchaser is saying that they will keep your directors/staff, they may ask the directors to prepare forecasts for post-acquisition P&L, which the directors will be held to, so won’t want to stick their necks out. This enables the purchaser to keep the price down (and exclude any of the potential upside of the acquisition).
Beware of price chipping at the 11th hour
Buyers will want you committed to the deal so they can drop the price and you can't walk away. Don't even begin to think about yachts, cruises and nice cars until the deal is done. The purchaser may decide they’re going to change the rules, after you have invested many months and considerable expense knowing you'll find it difficutl then to walk away.
Discuss this possibility with your solicitor at the earliest opportunity, and what you can do to avoid it. If you can elicit the purchaser’s plans for the business and quantify the upside, you will be better placed to argue against accepting a lower-than-expected price.
Beware all the detailed work to be done in secret but watch for TUPE
In addition to the legal agreement there’s a lot of work involved in the due diligence and disclosure letter, particularly if you do not have up-to-date records of all your agreements, intellectual property, etc. (see attached contents list from a legal agreement). Preparing this info without alerting your team is an art.
It is normal for the agreement to be secret until signed/exchanged on the date of completion, i.e. deal is done before your staff know anything about it. That's except for TUPE. If the staff are being transferred under TUPE, you may be obliged to start these negotiations before the deal completes. Tricky to manage!
Do due diligence on the purchasing company
If the deal is not entirely for cash then you are entitled to, and should, do due diligence on the buyer. Especially if you will end up owning shares in them or in working for them. Even if the deal is entirely for cash and you can walk away immediately you have a right to verify their ability to fund the deal.
Accountants should be helpful
Your accountants have known your company and the numbers from the outside for a long time and so can be valuable. But may not be. They may use the opportunity to print money, confuse you with jargon and fail to give you timely, intuitive, actionable advice. Take care especially on your need to know the tax situation before you enter into the draft sale agreement.
Be prepared for allegiances to swap to the buyer.
Directors transferring are in a difficult position of having a foot in both camps. When you sell your business, it's natural for the staff's allegiance to shift to the new owner. This can be a challenging time for directors, who may feel caught between two loyalty conflicts.