We are often asked to help businesses that have arrived at the decision to sell due to ill health. This can be due to the poor health of the owner themselves or of their close family members. It is a story that we hear more often than we’d like to. However, we will advise these business owners to make both a sale and the transition of their business successful, without compromising their ability to support relatives or indeed their own heath.
One of the benefits of using Business Partnership is that we have a wealth of past experiences and business expertise amongst our team. Douglas Craig based in the South East has himself experienced the impact that ill health of loved ones can have on you as a business owner. He says of his experience:
“I recognise the stress and strain business owners are under on a daily basis, and that is only magnified during the decision to sell. I understand only too well the pulls that owners feel between the sale of a business and taking care of those who need you. It’s not a nice position to be in and I would always recommend enlisting the help of a business broker to at least support you through the sale process, to alleviate some of that pressure.”
Ill health in any form can seem all consuming which is why as an impartial third party a business broker can help owners achieve perspective on the position they find themselves in. Time spent planning a business sale with a professional will help you to factor in space for emergencies or unexpected circumstances along the way, without adversely impacting business operations.
Selling a business can be challenging, even in the most straightforward of circumstances. We know that with the added complications that can surround ill health, even the most experienced business mind can be distracted from the decisions they need to make. A business broker can ensure owners are confident throughout the whole sale process, despite what is happening privately.
Douglas spent 17 years as a business owner and has a wealth of knowledge and background in the wholesale food and restaurant trades. We are delighted to have him onboard so that he can help others get the best deal possible for their business. Douglas has the expertise and empathy to work with those who have found themselves in similar circumstances as well as anyone else looking to exit their current business.
If you are thinking about selling your business for any reason, then contact us for more information about how we can help. Just some of the benefits of a Business Partnership business broker are:
– Able to give impartial and independent opinions of the sale.
– Understand the process of selling a business of any size.
– Ability to help put together value drivers about a business to prepare a better sale.
– Help in managing information to employees and existing client base.
– Support business owners by being on hand to offer support from start to finish through the sale process.
Why not get in touch and start a conversation.
Does your business fund its own overheads?
Does your cash get absorbed immediately by costs?
Is your cashflow healthy?
If your cashflow is unbalanced, the value and sale of your business could be compromised.
When a prospective buyer is contemplating a takeover, their priority isn’t simply to reward your blood, sweat and tears with one big cheque; but to contemplate how to get a return on their investment.
The reality is that the buyer isn’t just assessing all your businesses profits and revenue; they are reviewing the inherent liabilities too. The more cash you need to operate, the less people will want to buy your business. This means your buyer won’t be handing over just one cheque, metaphorically speaking they write a second covering the operating costs!
Imagine that these two cheques are balanced on the opposite ends of a scale. Their monetary values are converted to weight. If a buyer only has limited funds, for every bit of capital required to fund the operation of the business after sale, money must come off the offer price you are paid, to keep the pot balanced.
Of course! Take simple steps to ensure your business expenditures are covered and your cashflow is healthy. This could be easier than you anticipate. Are you too kind to your debtors? Are you too soon to settle your debts with creditors? You may even be tied into penalties or, liquidated damages, where contracts are involved. By simply extending the payment terms of your payables, ensuring that you collect receivables more quickly and minimising contractual commitments, you will have a healthier cashflow.
But it’s not just how you manage your payables, receivables and commitments. Do you manage your stock efficiently? If you’re holding a huge amount of inventory before an order has been placed, then there’s a problem. The same is true if your stock ageing profile means that you are carrying significant levels of slow or obsolete items, or your suppliers are struggling to meet delivery lead times.’
Make to order, if possible within your business model, and likewise, learn savvy production methods. Look at applying the Kraljic Matrix, mapping stock into two key dimensions: risk and profitability. Apply regular stock audits, to avoid the rocketing variable prices of holding stock and to keep things running efficiently.
Buyers are attracted to a business with less capital infusion required. Most importantly, you must demonstrate that your business funds its own overheads with good practice when it comes to inventory levels, margins and billings, property/rent, insurance, and utilities; all of which require a capital outlay.
As always, to grow your business and achieve maximum value before you sell, think like a buyer. Find out where your business sits on the Valuation Seesaw and please contact us today in the strictest of confidence.
Social media has become a part of our everyday lives. There are not many businesses that don’t have some kind of social media presence. That’s why, when selling your business, social media can be a tempting option as a way to get the word out.
While social media can be a good tool but, if you have concerns about confidentiality, having a broker or a professional help you through the process is a good way to make sure that you use it well!
Confidentiality
When it comes to selling your business, confidentiality is often a priority. Keeping the sale of your business quiet so that you don’t worry employees or spook customers will be important to some businesses.
Posting about the sale of your business on social media will make the sale very public as your employees and customers are likely to follow you. If this is something that you are concerned about, using a broker will allow you to advertise on social media via their network.
A broker can also advertise to a network of potential buyers as well your customers (but without mentioning you). It is a good way of keeping the news from those close to your business.
A broker will generally have a wider network that they can advertise to and this will also give your social media posts more traction. Make sure that when you are choosing a broker, you consider the kind of reach that they have. For example, Business Partnership has a database of over 100k subscribers at Feb-19, as well as many more on its national and local partner social media channels. Such depth can provide excellent exposure nationwide.
You should also discuss the content you are happy to disclose with your broker. Your business can be advertised in detail or in more general terms that will keep the sale confidential.
Different platforms
The way that you advertise your business will be different depending on the type of platform that you are using. Make sure that you are familiar with how you should present your business depending on the social media platform that you are using.
A well thought out strategy that has continuity will attract the most buyers.
Should you advertise on an online platform, you will be given a link that can be shared easily across social media platforms.
Remember, when you are creating your social media strategy, that the audience you want to reach will not be the same as who you are targeting when you are promoting your business’s products or service. Your strategy will not be the same because your target audience is not the same (e.g. competitors instead of customers).
Social media is certainly an option for advertising your business. However, keep in mind that, in order to make sure it is a useful option, it will be important to approach it differently to how would approach selling your goods and services.
You will need to think through the strategy before you leap into using social media to sell your business.
By Matthew Hernon is an Account Manager at Dynamis looking after Business Transfer Agents and Franchises across BusinessesForSale.com and FranchiseSales.com.
Selling a business you have passionately nurtured through the years can seem like a daunting task.
But, just like most other issues you have encountered, when you break it down into simple bite-sized chunks it starts to look a lot more manageable.
So, here’s a look at the sale process in six steps:
1. Deciding to sell
The decision to sell your business is the part you will probably find the hardest.
If you are selling purely for business reasons and can choose your time, it’s well worth looking at market trends and thinking carefully about how you may be able to add value to the business (see the Value Builder Score). Considering starting this as early as possible.
If it’s for more personal reasons such as health issues or family decisions, you may understandably feel less able to delay for the sake of commercial gain.
Then again, you may be itching to move on to something even better, or trying to figure out how best to cope with market fluctuations or bad news on the horizon.
2. Preparing your business for sale
Where you can afford to take the time, preparing your business is usually the stage at which you can do most to positively influence the final sale outcome.
Business experts agree that preparing a business for sale is a process which is often measured in years rather than months. In essence, you are seeking to deliver a profitable business in tip-top condition.
That, of course, involves getting all of your financial records and other documentation in good order, not only to show your business is organised, but also to make it easy for potential buyers to examine your great track record over a number of years.
But perhaps even more importantly, you should take steps to remove yourself from the business well before sale time.
And if you have a good management team in place, buyers will not be able to suggest there’s little value in the business once you have left the scene.
Also give yourself time to reflect on what actually makes your business stand out from your competitors – then you can set about the task of ensuring your company style, standards and other unique qualities are plain for all to see.
Again our Value Builder Score will help you understand the options here.
3. Valuation
Choosing one of the three common valuation methods will mostly depend on the standard practice within your industry.
At this stage, you will need the advice and services of professionals who have a broad experience of your business sector.
Complete honesty is absolutely essential. The valuation you receive will tell you the worth of your business, but as long as it’s well-presented and highly credible.
It should help to build confidence and trust with potential buyers and in addition, a timely valuation will give you a clear indication of where the value lies in your company – and probably some useful pointers about how that value might be increased.
4. Finding the right buyer
Handing the business on to the right new owner is a critical phase for the future of your company.
And if you have spared no effort in building up your company, you will certainly want to guarantee it remains in good hands.
So, think carefully about the kind of new ownership you would like to see in place. You may be fortunate enough to find someone who will continue in the same vein as you, but try to remain open to the idea of new approaches which could bring further life and vitality to your business.
Assessing potential successors becomes easier if you have previously identified and prioritised the essential features you will be looking for.
5. Due diligence
Once you have located a serious buyer who meets your criteria and wishes to proceed, the potential buyer will want to conduct a thorough due diligence of the business.
At this stage, you will want them to sign a confidentiality agreement before giving them access to private (and sensitive) legal, financial and commercial business information.
6. Deal negotiations leading to a sale agreement
With the insights gained from the due diligence process, your potential buyer should now be in a position to negotiate the details of a draft purchase agreement.
Inevitably, this involves compromises as the buyer points to features which may slightly downgrade your valuation, while you and your team counter and reference aspects of your business which could potentially raise the valuation even further on the open market.
And provided your preparation has created an atmosphere of mutual confidence, it’s usually just a matter of time before the parties agree a final sale figure which meets the expectations of both buyer and seller.
For you, that’s likely to be a moment of relief and celebration. But you’ll then have plenty of time to reflect on a job well done.
By Jo Thornley, Head of Brand and Partnerships at Dynamis.
Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.
Back in August 2017, we received an enquiry for a business that had been on the market with ourselves only a matter of months. The enquirer, a large multi-million pound turnover business hot on an acquisition trail and keen to acquire much smaller concerns. Ours had a niche market position which fitted well with the proposed acquirer who operated more generally in the sector.
Having arranged a meeting with the acquirers Financial Director and our client, we negotiated Heads of Terms to include the net working assets (which included cash) and we all seemed ready to go, albeit this was at the smaller end of the acquirer’s market and previous acquisitions. The proposed target date to complete was December 2017.
We had worked closely with the accountant (also the introducer) who remained helpful and involved.
So far so good!
The purchase was solely for the main trading company. A smaller service business with a different client base being excluded from the purchase. The smaller service business shareholding was 50/50 with a key employee of many years, who whilst working for the main trading company as a Director was not a shareholder and therefore not a beneficiary from the share sale. Furthermore, he was not privy to the proposed sale, as the relationship between our client and this Director had deteriorated over the years.
What happened next!
The Director (no shares) met with the acquirers on his own and highlighted his perceived importance to the transaction; needless to say this caused a rethink and renegotiation.
Time continued to pass and now the acquirer wanted the non-shareholder to enter into the sale and purchase agreement, including the non-compete clause. So we had to issue shares to meet his requirement and also, with the aid of the Accountant, negotiate the sale of the smaller service company shares held by our client, so that the other shareholder then had full and sole ownership. Meanwhile, this modest acquisition was put further down the pecking order as larger acquisitions took priority.
Between ourselves, the Accountant, the Shareholder and the Director plus some input from the Solicitor we achieved the sale in August 2018.
So what can be learnt!
So, you’ve decided to sell your business. The journey can be rather complex, with several things to consider. The amount you profit will depend on the reason you’re selling, the time you decide to sell, the strength of business operations, and its structure.
The selling process is going to require a lot of your time, so it’s best to get it right to ensure a smooth and profitable sale. Here’s our guide to selling your business.
Decide Why You’re Selling
Potential buyers want to know the reason why you’re selling your business. The better the answer you give, the more interested they will be.
Common reasons are:
Get the Timing Right
Try to prepare for your sale as early as possible, even one to two years ahead of time. Use this time to improve financial records, business structure and customer base – all factors that will make the business more profitable. Trying to sell a business that’s fading is going to be a hard sell, so aim to sell on a high.
Find Out How Much the Business Is Worth
To find out how much the business is worth, obtain a third-party valuation to ensure you don’t sell it too high or too low. A detailed document will be created and used to bring credibility to your asking price.
Determine Whether You Will Sell Privately or Use a Broker
Selling your business yourself will help to save money and avoid paying broker’s commission, though is best used when selling to trusted family or current employees.
A broker will help to free up your time and allow you to keep the business up and running while you go through the sale process. They will also try to get the highest price possible.
Prepare Documents
Collect all of your financial statements and tax returns dating back three to four years, and review them with an accountant. Also, develop a list of equipment being sold with the business.
Find a Buyer
Selling a business can take a while, sometimes between six months to two years, as finding the right buyer can be a challenge. Try not to limit your advertising to attract more potential buyers.
If you need assistance in selling your business, contact Business Partnership. We have a proven track record in supporting business owners to sell their businesses.
Firstly, larger businesses which involve the sale of shares in a limited company are generally marketed as ‘offers invited’. As it sounds offers invited listings are provided without price guidelines or ballpark figures. This allows the seller and buyer to consider all options and come up with an amenable figure for both parties.
Sellers will list their business as such, due to the fact that it can be much more relevant to have meaningful discussions with someone who hasn’t got a preconceived notion of price. It would be fair to say that larger businesses are bought by current trading entities and therefore, to be candid, they will generally tell you what they will pay for the business!
Secondly and often most importantly, the vendor may not have a specific price in mind for the business… it may be that they are just looking for the ‘best price’ that they can achieve at this moment in time. If retirement is looming fast, price may not be a huge consideration, which means a bargain can be scooped up by an intrepid buyer.
An instance recently involved a comment by a so-called ‘serious buyer’ who stated that ‘he wasn’t interested in a particular business if the seller didn’t know what he wanted for it’! Which is rather short sited (to say the least), as surely the business health and profitability should be of chief concern to a buyer.
Mainly though ‘offers invited’ creates a valuable and important atmosphere, which surprisingly, tries to eliminate the wasting of time, both for seller and buyer. As it’s able to combat situations where the buyer does not have enough capital, and/or where the seller is after the sum total of King Midas’ horde for their business.
This is where having a well informed and logical dialogue with the agent (easier at the Business Partnership than some other agencies I’ll admit) should be the most sensible route. As even if there isn’t a specific sale price agreed between the vendor and the agent, we will always have some sort of multiple in mind. At the very least it enables for a constructive dialogue about the business. We all know that sometimes it’s not possible to detail all the information in a business via the information memorandum.
So remember, if it says ‘Offers Invited’ then that is just what it means… make us an offer!
If you’ve spent years building a business, selling it can be a difficult decision to make. Sometimes you just can’t run it any longer, or you may simply want to move on to something new. However, even once that decision is made you then have to consider what you are selling and the different tax implications of this decision.
Goodwill and Asset Sale
As part of a goodwill and asset sale, the buyer taking control of the business is effectively buying its assets. Those assets include physical items such as property, machinery, and stock. It may also include non-physical assets such as intellectual property, trademarks, and patents, as well as the goodwill of the business hence its name.
From the buyer’s point of view, this type of sale can be advantageous as they can pick and choose the bits they want and reject what they don’t.
Having said the buyer can pick what they want, it should be noted that all employees are usually transferred to the new owner with their employment rights protected under TUPE.
The advantage of a goodwill and asset sale is the ability to leave behind liabilities you do not want, however, it can involve significant disruption to trade, e.g. new customer and employee contracts, a new bank account for payments, new supplier credit limits to agree etc.
So if your main concern is ongoing trade a share purchase might be better.
Share Sale
A share sale is where the buyer acquires the shares of the company that owns the business.
In the reverse of a goodwill and asset sale, the buyer of the business inherits all the assets, liabilities, and obligations that go with the company, warts and all. That may include warts you don’t know about! As a buyer please see our article on using warranties to protect yourself.
However, you have one significant advantage – commercially there is no change in how the business trades to the outside world. No new contracts or negotiations, just business as normal. If you are buying the business for its ongoing profits, then surely the less disruption the better.
From the above Goodwill is not a prerequisite of either sale type, although it’s often present and reflects the ongoing level of expected profits.
Differing Tax Treatments
For tax purposes, a share sale is usually considered a more attractive prospect for the seller. A goodwill and asset sale is a better bet for the buyer.
When selling any asset for a profit, we’re all liable to pay Capital Gains Tax (CGT) personally, but a company pays corporation tax on any profit made.
Goodwill and Asset sale
It’s important to remember that tax is only levied on the financial gain you’ve made and not the actual amount of money you receive from the transaction.
A company would normally pay corporation tax on the profit it makes from the sale of an asset. In 2017/18 this stood at 19%.
This is not the end of the tax. For a seller to extract the cash from the company a further charge is payable:
This is when it can become very expensive for a seller to sell via goodwill and assets. However, a buyer can write off the cost price of the assets against future profits.
Share sale
As shares are an asset the tax rules governing capital gains tax apply (CGT) apply, but if you qualify for Entrepreneurs relief then the rate currently is a very low 10% of the gain over the price paid for the shares.
This, generally, means a share sale is better for a seller. However as a buyer can’t write off the cost of the shares, then they prefer goodwill and assets from a tax standpoint.
Entrepreneurs’ Relief
For those selling all or part of their business, it may be possible to claim Entrepreneurs’ Relief on Capital Gains Tax. This benefit effectively reduces CGT to 10% on the first £10m gains you make from selling such assets over your lifetime. Anything over this will be taxed at a rate of 20% (as at 2018).
You’re eligible for Entrepreneurs’ Relief if you control at least 5% of the shares or assets you’re selling, you’re a sole trader or partner selling your part of the business, or to extract cash after an asset sale within three years of it closing down. It doesn’t apply to property-letting businesses unless they’re furnished holiday lets.
Conclusion
From the above, it can be seen that there are many factors to consider when you sell or buy a business. Price is only the starting point to ensure that you agreeing to the best terms.
Business Partnership
At Business Partnership we’ve helped thousands of entrepreneurs buy and sell their businesses over the last thirty years. We can help you design the right deal to maximise the value and, working with your accountant, help you minimise the tax paid as well. Find out more.
When valuing a business it often feels like we are providing an education in how to sell a business and ensuring the benefits that have been gained over the years are not lost in excessive taxation or poor planning.
I feel that this is partly the fault of the business broker community but also the fact that several professional services need to come together to provide the expert advice necessary to produce a successful and profitable exit from a business.
As a business broker, we will be confident of putting buyers in front of you as our marketing works. However, before we go to market it’s important you have consulted and discussed your options with quite a few people. We can help this process or you may have your own contacts.
Business exit specialist – Part of the offering from Business Partnership is a free report on how sellable your business is. It will identify keys areas to improve and help gain a higher asking price.
Financial Advisor – Often a business is going to be a very important part of your life. The benefits of planning pension contributions and structuring your exit over time could prove very beneficial and tax efficient. They will also be able to help you invest your proceeds.
Accountant – It’s always good to keep your accountant in the loop as they can be a useful source of information and you’ll no doubt get some questions which they can help with. Keep them on board!
Solicitor – A friendly and professional solicitor is always helpful and as long as they are competitive and prepared to get the work done in a timely manner. There could be larger family matters they can help you with such as inheritance planning.
Commercial Agent – If the business owns the building you operate from then it would be good to get a commercial valuation in writing for a buyer to view. If you are not including the building in the sale then revert to your solicitor on how to extract the building but the commercial agent will also be able to help value and draw up a lease for the incoming buyer.
Financial Planning – This is often overlooked but checking how the influx of the sale proceeds into your finances can affect your future income and investments may mean you can retire early. It might also allow you to consider different payment plans.
Family and friends – As long as you trust them to be confidential in what you are discussing then it’s always good to get a few different opinions.
The overriding piece of advice would be that you need to plan your exit and not rush into things. IT can take a few years to prepare a business for sale. Why not talk to us early in the process as we’ll be able to help you put a plan together and maximise your return!
Finding the right business broker is a priority because selling a business can be a lengthy and difficult process, therefore, using the right team with the best negotiators is imperative. It’s important to find the right Broker that has experience and expertise to get the best deal for you. The skills of the team include great communication, emotional control, preparation and problem analysis. Before entering into negotiations on your behalf, preparation is key because it helps determine goals, it also gives the broker an understanding of both parties desires which will assist them in getting the best result. Understanding problem areas in the negotiation is important, this will be analysed in order to find common ground to resolve any issues. When selling a business you will rely on your negotiator to work closely with you and have your best interests in mind.
A good negotiator will avoid lost opportunities by having a strategy and understanding the fundamentals. When the important factors for each party are understood, the deal can be tailored to meet those needs.
Key tips to remember when negotiating to give you the best possible results
1. Make sure the potential purchasers have the funds available, or, can get funding to purchase the business before putting offers forward. – It goes without saying to make sure to research your buyers, to save yourself from timewasters and protect yourself from bad deals. However, are you asking as many questions as your buyer is asking you?
2. Resolve any potential problems first before getting into the finer details of the deal. – You don’t want to spend your time prepping for a deal to go through, only for it to fail in the final stages due to a problem that could have been resolved earlier. Be preemptive in your approach, anticipate problems and nip them in the bud.
3. Have a realistic offer to put forward, advise and guide both parties to get the best end result, – You can’t sell something well unless you know how much it’s worth. Make sure you have a fully researched and worked out figure before moving ahead with any sale. Don’t let rose tinted glasses guide a valuation, and in the same vein, don’t undervalue.
4. If negotiations are not moving forward, take time out to assess the situation and give both parties time to reflect. – As with anything that takes a great deal of time and thought, a mental burnout is inevitable. Sometimes instead of progressing quickly, it’s wise to take some time to stop and think, really reflect on any issues and return afresh.
5. Understand and know all about the seller, e.g. Why they are selling, timescales, motivation to sell and key needs. – As with point one in this list, it’s all about knowing every facet of the business you’re selling, why you’re selling and who you’re selling to. The number one priority, have the answer to every question.
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.