A lot can happen in 12 months. That’s the average time it takes to sell a business.
In recent years, qualifying business owners in the UK have been able to take advantage of an unusually generous tax break under Entrepreneurs’ Relief, where Capital Gains is effectively set at 10%.
Compare the possibility of turning your shares and assets into cash at 10% tax with working for the next few years, paying tax at the higher rates.
Then think about what could happen before you finally make the leap and decide to exit your business. Will this rate of 10% still be available, or will the Chancellor see it as a soft target to raise more tax and appease those who see wealth-creators as the devil incarnate?
Surely, if the Conservatives are still in power, this couldn’t happen, could it?
Really? When I sold my first business in 1988, the rate of Capital Gains was 40%, and that was under a Tory government. I paid the taxman enough to buy a very nice house, thank you very much.
I’m a business broker, not a tax advisor and I’m not suggesting everyone should offload their businesses right now; just that it might be prudent, if you have been considering it, to act sooner rather than later and discuss the pros and cons with your accountant and IFA.
Or, if you are planning to exit later, rather than sooner; put together a strategic plan to ensure your business is as attractive as possible to as may buyers as possible.
I sit in many meetings with clients, potential clients and their advisers where everyone moots who might buy their business and where they might come from.
True, you should always look at which buyers would make the best fit and go for the low-hanging fruit first. However, it would be a mistake to close your mind to the fact that your buyer may well come from a direction you, me, or your advisers could never have predicted.
For example, I have just completed the sale of a manufacturer of steel industrial partitioning and safety products.
When we first sat down to discuss our exit strategy, I’d researched the M&A deals that had been done in this sector over the past 5 years and this exercise provided a few likely targets to approach directly. With the client, I then compiled a list of likely synergistic businesses: other partitioning manufacturers, interior fit out companies, mezzanine floors manufacturers, etc., etc.
Then, there was the myriad of investment companies and private investors from our database and networks to talk to but never, not in a million years, could we have predicted that this business would ultimately be sold to a chicken farmer.
I took a call from a family member of a farming business and he explained they were looking to diversify and intended to make 3 or 4 acquisitions completely unrelated to their core business, which they had decided was invested up to the maximum they felt comfortable with (I’m tempted to say they didn’t want all their eggs in one basket).
I persuaded them that it would be much more cost-efficient in both management time and professional fees to invest in one good, but larger, business.
They took this on board and my clients felt very comfortable with the buyers’ family business ethic and, with funding in place, the offer was accepted. So, after 13 months, well over a hundred enquiries and four offers, the deal was completed last week.
Now, who could’ve predicted that?
The first article on this subject looked at the issues surrounding selling a business within a short time frame. The article offered advice as to what measures and actions a potential seller could undertake to increase the value of their business. The second part to this article looks at business owners looking to sell in the longer term.
Determine the exit priorities of the owners
It is important to consider the goals and aims of all partners and shareholders.
It essential to have an understanding of the value of your business, indeed your future lifestyle depends on a successful sale of your business. From a survey of 13000 businesses it has been established that there are 8 factors that affect the value of a business.
Prepare for Due Diligence and legal scrutiny
First and foremost once the decision to sell has been made it is necessary to conduct some financial and legal due diligence to mitigate any issues which may arise later in the sales process.
Key Points For Long Term
As a starting point it would be wise to obtain a valuation from a professional business broker. Although your accountant can advise on this he will generally not have wealth of experience of a professional broker. You can also take the ‘Value Builder Survey’, which provides a guide on your company value and includes advice on how to increase the value of your business.
Often when meeting new clients for a potential business sale the first question I am asked is ‘What can I do to increase the value of my business?’
The answer is dependent upon the timescale for the sale. The suggestions for a client selling a business tomorrow are very different to one thinking of selling in two years. Part 1 of this article will focus on companies looking to sell their company within the short term.
It may be worth having a chat to your accountant about your business performance. The diagram illustrates some key ratios to understand:
Illustration 1 Key Ratios
A potential purchaser will be interested in knowing the expected return on their investment. They will be looking for a good return on their investment to compensate for the capital risk on the new venture.
The purchaser will be interested in the profit margins and whether there is scope to increase margins through reducing costs or raising prices. Customer and supplier relations are key to this area and it is important to keep these stakeholders happy during the sales process.
It is important to be aware of the relationship between cash flow, debtors, creditors and stock. These need to be managed to reduce working capital requirements.
It would be worthwhile to take a ‘fresh look’ at the business and consider what is good and what works for the company:
A business owner will generally be unaware of the value of their business and may need some assistance in calculating a business value. It is often the case that an accountant or business broker will be brought in and they will be able to give an approximate market value of the business. This value will be based on both local and national knowledge of your business sector. Moreover, it will be adjusted for current market conditions and prevailing sales. To achieve
This value will be based on both local and national knowledge of your business sector. Moreover, it will be adjusted for current market conditions and prevailing sales. To achieve best value it is wise to use an advisor who is able to gather data on recent sales. Using an agent attached to a larger organisation will help secure this as they will have access to a national database.
Business brokers are experienced business professionals with backgrounds ranging from marketing, accountancy and engineering. When choosing a broker it is essential to ask a number of questions:
It is often the case that a broker will want an exclusivity contract and it is important to ensure that all the terms and conditions are understood. It has been known for vendors to receive an unexpected termination fee on of a broker’s contract.
It is obvious that you will need to have in hand the last 3-5 years of financial accounts. It may be necessary to restate these to account for excessive salaries or subsidised premises. It may be also worthwhile considering failed projects or one-off costs that will not recur for the new owner.
It is also important to consider confidentiality, as some business details are clearly sensitive. A non-disclosure agreement should be signed at an early stage of the enquiry process. From this point key accounts and suppliers should be kept ‘under wraps’ until the price is negotiated and solicitors instructed.
Part 2 of this series will discuss the issues for companies looking to sell in the medium term. In these cases the potential vendor has a little more flexibility in terms of strategy and time will have greater opportunity to showcase the very best of the company.
For further information contact our offices today!
“You cannot be serious!” These are the words proclaimed by the Business Partnership team when a business sale breaks down unexpectedly, and sometimes for bizarre reasons.
Buying and selling businesses is a complex and often lengthy process. So it’s comforting to know there are experts like us who are here to support you through the experience. In reality buying or selling a business isn’t always easy – business sales can fall through for a number of reasons, so it’s important to prepare for the possibility.
Some of the common reasons why sales might not reach completion include unexpected health issues, acrimonious divorce or separation, bereavement, and disagreements between partners or shareholders. Disputes over ownership of company cars can also become quite heated.
We asked our experienced and knowledgeable Regional Partners for some true stories of business sales that have broken down and the unpredictable reasons why.
The vendor of a three-storey restaurant accepted an offer on condition the purchaser cleared out all the old furniture. The purchaser agreed it was detailed in the Heads of Terms. Several weeks into the sale, the purchaser changed his mind and asked the vendor to clear out the furniture and fittings. The vendor disagreed pulled out of a deal worth £440K to him. Ironically he could have hired a clearance company for a few hundred pounds to do the job, effectively throwing away £339k!
The lease terms for the sale of a bookshop included three parking spaces in an adjacent car park but only two were legally theirs. A third parking space was offered at a special low annual rate, payable to the local council. This wasn’t enough for the buyer who withdrew their 70K offer at the last minute.
On the eve of completion for the sale of a large brewery worth more than £1M, we received a call from the bank. It had come to light that the building did not have planning consent to be a brewery despite having traded from their location for 23 years. The chief solicitor for the local council tried to intervene but failed to satisfy the bank that all would be resolved and funding was withdrawn. The deal collapsed.
After exchange of contracts the buyer of a pound shop had a reality check. He realised that to achieve sales of £17,000 per week he would have to move at least 17,000 items of stock – something he wasn’t willing to do at his stage of life. His eureka moment cost him £50,000 in compensation.
A man instructed us to sell his business. Initial checks showed he didn’t own the business. He was trying to sell it whilst his manager (the real owner) was away on holiday!
The unfortunate incident of the company that burned down a day before completion. A tragic, unforeseen event, but so close to completion, the finance director had neglected to renew the insurance cover which had expired days beforehand. Everything was lost.
These honest stories highlight the importance of carrying out due diligence checks before proceeding with a business sale or purchase. It also highlights the importance of ‘business as usual’ until the sale fully completes.
Sadly, some purchases are just not meant to be. Our advice is to enter into a purchase/sale with your eyes open. Your local Business Partnership representative can support you along the way and ensure, as far as possible, all necessary checks and due diligence are carried out.
Despite the fears that Brexit would completely demolish the British economy, the current outlook is surprisingly positive and arguably now is the perfect time to sell your business. Over the past couple of years, the sale value of businesses across the UK has only increased and continues to do so. If you are a business owner and have been considering selling your business, now is a better time than ever. Post Brexit research showed that those looking to acquire businesses were of the opinion that if a business is profitable it is as attractive as ever regardless of the current circumstance. With that in mind here are some of the top reasons why you should consider selling in 2017.
Research has suggested that in 2017 investors are more active than ever and as a result, anybody hoping to sell their business has a larger pool of potential acquirers they can negotiate with. With this increased competition it is more likely that business owners will be able to get a price they are more than happy with.
Currently, there is a government scheme is place that allows business owners to claim entrepreneurs relief tax when selling their business. This means the owners pay only 10% capital gains tax overall as opposed to the usual higher rate of 18% or 28%. If you are wanting a high return this is the time to capitalise on this.
This year the UK’s interest rates are currently at a record low of 0.25% and is holding but the Bank of England has also signalled that it could go lower. This means that buyers have an increased access to finance when looking to acquire a business. As a result of this, the marker is currently being flooded with buyers taking advantage of these rates.
With more buyers in the market, the valuation of your business will be at an all-time high. Because of the current economy entrepreneurs are struggling to secure loans to either star a business or help the growth of a new business. Banks currently look much more favourably on financing loans for business acquisitions. It is considered to be a much more secure investment if they are able to see the stable history of a business and prospects for the future.
If you are a smaller business and you have successfully stayed afloat in the last few years where the UK has experienced an extremely tough economy you are immediately more attractive to buyers. This shows potential acquirers that your business has what it takes to be successful even when the odds are against you. As the economy slowly starts to get back on its feet your business will have a massive opportunity for growth and during this time buyers are very much aware of this.
There is currently a huge pool of buyers looking to acquire a small to medium sized business that have prime locations. By acquiring these smaller businesses it helps entrepreneurs have their first secure business and it allows bigger corporate buyers to collect businesses for their portfolio. Businesses that hold particular licences and are I prime locations such as high streets are especially sought after currently.
If after reading this you are in a position where you feel like looking into selling your business is a viable option your first port of call will be to Business Transfer Company. They have everything you need in place to provide you with the right people and tools to be able to make a successful sale in 2017.
Retirement comes to us all. Even if you’re not working in an occupation with a fixed retirement date, there will come a day when you just don’t have the energy to keep going anymore. You want to shed the pressure and spend quality time with your grandchildren or perhaps on that hobby you never have enough time for.
When it comes to the crunch, retirement can feel like a huge wrench. That’s it. You’ll never work again. A scary thought indeed, or maybe the best thought you ever had. But either way, the jolt can be felt especially keenly for those who run their own small or medium business.
Often the retirement of the owner spells the end for otherwise successful businesses. Well-run, profitable businesses, popular with the local community, that just disappear when the proprietor needs to take off their shoes and embrace a quiet life.
This is such a shame. It’s not unusual for failing businesses to close, but successful ones? And what about your staff? Then there’s all that work you’ve put in over the last thirty years. Gone. Just like that.
Just hang on there! Don’t be hasty. Didn’t you know that there are lots of people out there just waiting to buy a business like yours?
If you’ve made a success such that, with a little TLC, your business can still go from strength to strength, there’ll be somebody out there willing to pay good money to fill your shoes. There are plenty of budding Entrepreneurs out there, just look at Dragons Den, and more of us than ever are looking to invest capital to become your own boss. So why not sell your enterprise to somebody who wants to continue your good work?
Get in touch with us at Business Partnership for your first valuation. We’ll help you understand what your business is worth, and secure the buyer who’ll cherish and build on your past successes.
The biggest question you’ll get asked when selling a business is ‘why do you want to sell?
Whilst it is a seemingly simple question if you don’t have a concise and comprehensive answer for your prospective buyer then they may be immediately put off. They often ask this question because they want to understand where you see your future; is it with the business or are you rushing to get out.
Whatever your answer, it speaks volumes about how you feel about the current state and future of your business.
In these situations you should never lie as it will cause problems later down the line, but there is a right and wrong way to approach this question. It is tempting to just give a very direct and honest answer whether it be you want to spend time travelling, with family or embark on a new business venture but there is a way to go about it.
What they want from an answer is that your current situation, whilst helping them realise the potential of your business.
Generally when answering this question you should take your age into account to understand the best way to respond. Here we have compiled some suggested responses based on this;
If you’re under the age of 40, it will be obvious to an acquirer that you aren’t looking to retire anytime soon so it will be important that you communicate to them the benefits you see with merging your businesses together. You won’t want to appear as if you are attempting to abandon a sinking ship so you may want to phrase your answer in the following way;
“Our aim is to take our business to the next level and so we are searching for a partner to increase (sales/reach/capital etc. anything that their business would bring to the table)”
If you are between the age of 40-55 potential acquirers will understand that you are likely looking to create some form of liquidity from your business. In this instance you should think of answering in the following way;
“I am now at a point in my life where I am looking to create some liquidity from my business’ value, but am also am looking for a partner to help bring the business to the next level regarding (insert specific criteria)”
If you are over 55 you are likely to be looking at soon retiring and any acquirer will be mindful of this. With this in mind you should still make sure that you are communicating how much passion, energy and time you have for your business. In this instance you should think of answering in the following way;
As you can imagine I am approaching a stage of my life where I am now thinking about retirement and whilst this is a while off I want to proactive to ensure the future success of my business.
As long as you give a response that is natural. Remember you are trying to convince somebody that you have a genuine reason to sell what you are telling them is a fantastic opportunity!
If you are planning on selling your business you need to be prepared for a lot of questions from potential acquirers. It is important for them to understand every single aspect of your business, even things that you think are insignificant will be of great importance to them as they are the one making an investment. Whilst not every person you meet will grill you at such an intensity, it is important to be prepared for anything. Here we have compiled some of the most frequently asked questions that you might not yet have a straight answer to.
This is the most basic but fundamental question that you will be asked and you should trust that it will be asked. Depending on your circumstances, it can be the most difficult question to answer as if your business is as bright and booming as you are undoubtedly claiming it is, why would you want to sell? Ultimately if you don’t have a well thought out answer to this it is probably the first and last question they will ask you.
Any business owner knows the key to sustainability and potential growth is having a formula to find new customers that is predictable, economical and scalable. Without this, an acquirer is likely to see your business as risky with low potential and unless they are willing to put a considerable amount of time into restructuring they are unlikely to invest.
Understanding the market is key to future growth and this will be an important question in the mind of any acquirer. They will want to understand the size of the potential market for your service/products and how much of this market is left to be tapped into.
Who in your current team is crucial to the business?
A business is only as good as its workers so any acquirer will want to know who everyone in your team is and what role they fulfil. If they are to take on your business they will need to know who is an integral part of the day to day workings.
Acquirers more often than not already have businesses of their own and if they are being strategic about their purchase they will be exploring any overlaps of what you provide/sell and what they do. The more you are able to explain about your customer demographic the more they will be able to understand all of the ways in which the two businesses could complement one another. Equally, if your market isn’t within the general public and your customers are businesses, they will want to understand what businesses and specifically what sector purchases your goods/services.
This question will help an acquirer understand how unique your products or services are in terms of the processes involved in creating them. If it is a process very unique to your business and brand then it makes you a lot more desirable as competitors would struggle to replicate it. They will also ask because it is important to know who exactly your business depends on for to produce these products/services.
Understanding how unique your business is in comparison to your competitors is key to predicting its future. They will want to understand what exact measures you have in place so that you won’t suddenly be overtaken by the competition.
Buyers do not want to waste their time trying to understand the office set up you have left them once they take over. It is important you have a clear and concise answer of how you operate in terms of bookkeeping, any software you use, means of data storage, how invoices are paid from customers and to suppliers. These are all extremely important and ideally you will have a simply understood structure in place for all of this.
Whilst this list is only a handful of questions you may be asked, they are still questions that you might not have considered before especially when you are caught up in the logistics of trying to sell. Regardless, with these in mind you should be better prepared to answer anything they throw at you.
When we keep doing the same thing year on year, it’s bound to get a little boring. For those of us with the sort of drive and creativity to start a new business, it can be especially so.
You’ve done it all. Sales are good and you have a solid customer base. You’re a success and that’s not to be sniffed at, but the thrill is gone. Sure, you’re proud of what you achieved, but expansion isn’t on the cards. It’s the same old, same old, and you want the excitement of getting established again. We understand.
And yet, you’re still proud of what you’ve done. Yours is a successful business filling a major local need. So why not pass it on to somebody else to run?
Lots of people are looking to run a business, but not everyone is a risk taker. There are so many more who can’t afford to ditch everything and watch their income grow back up from nothing. Many who would happily step into your shoes, and run your business for their long-term stability. Those people are willing to pay too, so why not consider selling your business?
There are two types of business people: the innovator and the operator. Both are equally valid, but they’re very different. The former loves the excitement of building a business from scratch; the latter is great at running it day in, day out.
So don’t be afraid to sell your business. There’s always someone willing to pay for your work. Someone who’ll take your hard built business, care for it and nurture it, leaving you to do something fresh and new.
If you’re tempted to sell your business and start afresh, see our website and find out what your business is worth to somebody else. It may just give you the funds to pursue another dream.
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.