When it comes to selling your business you should be prepared for what may feel like an overly intrusive process. Potential acquirers will want to probe your business top to bottom, understanding every inch of what they would be purchasing. You should also be prepared to answer a seemingly endless list of questions which although may seem tiresome are imperative to making a successful sale.
Generally, if you are dealing with a professional acquirer they will already have a list of ‘objective’ questions about your business. The following are some of the most common that you should be able to readily answer or provide relevant documentation on. It is also important to remember that depending on your industry these questions can vary but these are some of the most general.
It is also likely that they will want to get a subjective overview of your business and generally try to understand what amount of business success is personally attributed to yourself. In order to do so, the buyer isn’t likely to ask questions but rather be slightly more deceptive in discovering this information. Experienced acquirers will be well versed in the tricks of finding out about you and your business. The following is the top four most commonly played out ‘tricks’ from potential buyers:
As one of the more objective questions, a potential buyer may ask you what your vision of the company’s future is. Naturally, this is a question that you should be fully prepared to answer, but it is a vision that is only known by yourself? One of the tricks potential buyers might use is to ask your staff if they are also aware of the future plans of the business. This may vary from managers to general staff, but if they are not in the loop with your plans it may appear that this vision is only in your head and will not be realised anytime soon.
Another trick that is often used is to try to change the time of a meeting you have scheduled at the last minute. This may seem unusual but depending on how easy or difficult it is for you to accommodate this change they will be given a clearer idea of the role you play in your business. If you are unable to rearrange they will undoubtedly want to know what part of the business is so integral that you are required to personally be there.
One of the best ways of getting to know a business is to talk to the customers and potential buyers will not hesitate in doing so. If they ask you to put them in contact with some of your customers naturally they will be expecting you to choose those with the most favourable opinion towards you. However, what they want to know is why they buy from you, will they be loyal, is it because of your service and products or more due to a personal relationship with you? If they discover it is the latter then they are less likely to be impressed.
One of the final ways they may go about understanding your business is through ‘mystery shopping’. This can even be done even before they meet you. They can pose as a customer themselves, whether this consists of going in store or shopping online to get a feel of the average consumer experience. They are testing your systems so you should ensure that your business consistently offers a good and reliable service to all customers. You should also make sure that you are not the one who constantly wins new customers, as if this is seen as a regular occurrence a potential buyer may feel that business is only growing because of you.
By keeping in mind both the objective and subjective ways in which potential buyers will test your business you should be fully prepared to sell in no time at all.
In the past, a smaller business looking to sell usually would have to go looking for potential buyers and subsequently be heavily driven down on the price. However, as a result of the current market, it has never been easier to sell your business. Larger businesses have cash, interest rates are low and the stock market is increasing.
With this in mind, there are a number of steps you can take to make put your business out there to be noticed by potential buyers and to be as desirable as possible amongst your industry competitors.
One of the best ways to be noticed within your industry is to enter your business for as many awards as possible. Whilst for most people this may seem like a waste of company time it can be a very worthwhile process when it comes to selling. In such a competitive business market these types of awards can be PR gold for you; not only do they provide you with a logo for you to put on your website, but also any marketing materials, emails and even packaging. Winning awards is a clear indication of your growing success to acquirers within your industry.
To give your business an extra boost you might want to also consider hiring a PR professional to help get your name to the right people. Use this kind of service to be seen as a thought leader, publicise your wins, a new product or service or comment on latest developments. Use not only the obvious mainstream news sources but also more specific trade and industry publications in which potential acquirers would likely see. This may seem like an unnecessary expense for your business, but more often than not it is an expense that quickly offsets itself through the increased sales and also potential acquisition interest.
Another option you may want to consider is for your business to host its own event. This event can be a conference, a networking event, a business dinner, the list is endless but regardless of the type of event, it is the perfect way to show off your business. Not only does it demonstrate the leadership and initiative that you are capable of but it is also a flattering way to allow potential acquirers to start looking into your business.
Within your industry, you will come across a number of ‘boards’ which are usually split up into the four categories of advisory, nonprofit, private and public. Usually, as an industry professional, you will be given opportunities to join some of these if you wish. Whilst this initially may not appeal to you, if you feel that someone on the board would be a natural potential buyer it may be within your best interest to join. In doing so you will be able to get to know the individual and make them aware of your business without having to appear eager to sell.
It is all too easy to view the sale of a client’s business as the end of the road – but we all know that does not have to be the case.
Business Partnership can certainly vouch for that as we have had 30 years experience in fine-tuning our approach to the sale and purchase of businesses.
We are keen to build mutually beneficial relationships with accountants throughout the UK.
To start that conversation, we would like to share with you some of the key features we have found to smooth the way to a successful business sale.
With the advent of online trading and the volume and rate at which businesses are changing hands, you may think that the process would be simple and painless.
However, the motivations and emotions involved are strong and the path from making the decision to go to market to actually selling a business is often not without complications.
To address the many and varied issues involved, over the coming weeks we’ll be publishing a series of articles under the following headings: Professional, Hand holding, Support, Trust, Informed and Collaborate.
If you would like to contact a Business Partnership regional partner in your region, visit our Offices page.
The Chancellor’s Budget and Autumn Statement always contain plenty of substance for writers and analysts from health to housing and the headline grabbing U-turn on tax credits.
However, the devil is in the detail and one proposed measure which may have slipped your notice in 2015 among all the numbers and percentage points is one affecting Entrepreneurs’ Relief.
If you are selling a business, an important factor will be whether or not you will qualify for the scheme, which is open to directors who own five per cent or more of a company.
It allows them to enjoy a 10 per cent tax rate on capital gains up to a lifetime limit of £10 million, which compares with the 28 per cent of tax payable without the relief.
If you have decided to sell all, or even part, of your business, the following must apply:
Looking to sell shares? Then the following criteria must apply for at least one year before they are sold:
George Osborne and his Treasury team are concerned that members of management teams who do not pass the five per cent “personal ownership” test are teaming up with other individuals to form a management company. This shell would own at least 10 percent of the trading company nominal share capital, allowing for the same rate of tax relief as Entrepreneurs’ Relief under the rules relating to joint ventures.
The Chancellor is keen to take steps to ensure relief was “only available to those selling genuine stakes in businesses” though tax experts have warned that closing the loophole could deter would-be investors from backing young companies.
A consultation document (Opens new window)on company dividends has been published by HMRC. The closing date for comments is February 3 and the legislation under the Finance Bill is planned to take effect from April 6.
Therefore, it is best to be prepared. If you are considering a solvent liquidation to take your money out of the company at 10 per cent tax, you may wish to do this before April 2016.
Remember, if you are thinking of selling a business, you should always seek professional advice as tax rules do change.
Is this a good time to buy or sell a business?
It is a decision many business owners, who hunkered down in the ill winds of the recession, may be presently pondering.
On the face it there may seem some stark choices – sell while the future looks bright, buy before costs rise.
You pays your money and takes your choice. But which is best?
As ever, it depends on your personal circumstances. Any person selling a business wants the best price. That’s a no-brainer. But holding on as things get rosy, may prove to be a better bet. However that depends on your sector.
Let’s say you trade overseas or rely on supplies from EU countries – who’s to say what effect the UK referendum may have?
Then there is the care, attention and affection you have for your business. If you’ve lovingly grown it from scratch, the last thing you may want to see is your business ripped apart or substantially changed after you’ve sold up. You want to find a good buyer who can develop and grow it and maintain the reputation you carefully cultivated.
The timing also has to be right. This may involve retirement or even succession planning.
It may mean, after years of struggle in the economic downturn, hanging around to enjoy the fruits of many (hard) years of labour.
Equally, if you’re looking to buy a business, the climate may seem favourable – but ploughing your hard earned saving into a failing business or one that is simply in the wrong location or dependent on other specific but no obvious factors could prove expensive.
Understanding regional factors, the wider market and keeping an eye on the impact of economy can be crucial in advising people to reach the best decision.
At Business Partnership we would heartily recommend owners to have their business valued on a regular basis so they know where they stand and can assess their own personal situation.
This only works if the valuation is honest, accurate and thoroughly considered to meet the needs of the business owner.
At Business Partnership, we have decades’ worth of experience and place a high value on professionalism, trust and discretion.
The last thing you need is a commission hungry agent offering advice that suits his need for sales rather than what is best for you.
Buyers also need to beware that the time is right to invest in a new business venture – especially if borrowing and personal investment are involved.
Sometimes, the time is right to sell – but knowing your numbers and finding accurate advice on the best time to buy or sell is vital.
For a fair and honest valuation of your business contact us now.
How to answer THE most important question
Many business owners believe the act of selling their business is similar to passing the baton in a 400 metre relay: once the pass is made then you’re done and you get to relax. In reality, buyers may often insist that you stay on for a handover period – that could be anywhere from five days to two years – during which time you may be required to continue to work in the business to help the buyer make the most of the investment they have made.
At some point, all buyers will ask you, often quite casually, “Why do you want to sell your business?” However beware, as these simple words often derail more deals than any others.
Buyers ask THE question to understand how likely and, more importantly willing, you are to stay on after sale or if you already mentally are heading out the door.
Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realise the potential locked inside your business. The potential you are probably promising them is there!
Here are some suggested responses based on your age.
Under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in engaging with someone with their expertise:
“In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the buyer brings to the table>.”
If you’re between 40-55 years old, most people will understand the need to shore up your personal wealth:
“I’ve reached a time in my life where I want to create some wealth from the value I’ve created so far, and at the same time I need to find a partner who can help the business get to the next level.”
If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.
“I’m at a stage where I need to start thinking about retirement. It’s a way off yet, but I want act early enough to ensure I can pass the business on, so that it thrives under new ownership.”
Practice your answer to THE question, so it is a natural response when you are inevitably asked THE question by a potential buyer.
Paul Dodgshon is a Regional Partner in The Business Partnership, who have been helping business owners sell their businesses since 1979. You can learn more about Paul and The Business Partnership here.
When you are selling your business one thing you can be sure of is that you will be asked lots of questions. This can often be quite frustrating and you will often feel the buyer is testing you. Simply he is. Before he writes the cheque he will wish to grill you on all facets of your operations. He needs to understand, in a short space of time, what you have learnt over many years. This can make the process seem intimidating. Of course every buyer will be different, but having answers to the basic questions will help when you’re in the hot seat:
1. Why do you want to sell your business?
A buyer wants to buy a business that has a great future, and you and your brokers presentation will be around this, so it can be tricky. So prepare your answer to “Why do you want to sell, and sell now, when the future looks so great? “
2. What does is cost your business to get a new customer?
Your buyer wants a business he can grow and therefore needs to understand how much it costs to grow. Evidence is needed that you have a predictable, economical and scalable formula for finding new customers.
3. What is your market share?
Again its about growth and trying to understand how big the potential market is and what part of it remains for them. So understand the size of your market?
4. Who are the key members of your team?
The acquirer, more often than not, sees your business as an investment and not a job. He therefore wants to know who makes your business tick and, by inference, that this is not you!
5. What do you customers look like?
Strategic buyers are searching for any possible synergies between their sales and yours. The more you know about your customers and their demographics, the better the buyer will be able to assess the strategic fit. The better the fit the more they could pay. If your customers are other businesses, a buyer will want to know who the decision maker is, e.g. training manager, sales director, finance director.
6. How do you make what you sell?
This question is asked to understand how unique your formula for creating your product or service actually is. Potential buyers want to know if you have any proprietary systems that would be hard for a competitor to replicate. They will also want to know if the creation of your product or service is dependent on any one person.
7. Is there anything unique about your product or service?
A buyer is trying to understand what kind of edge your product or service has in the market that will protect them from competition in the future. Also they wish to know if you have any legal measures in place to back this up.
8. Can you describe your back-office setup?
Most buyers will try to understand if they can achieve economies of scale. So they will want to know about your bookkeeping and billing software, how customers pay and how you pay suppliers.
Summary
Our list is, of course, for from a complete list of potential questions. It is however a good start when you’re preparing to represent your company to potential buyers. Having these answers at your fingertips will increase buyers confidence and support the value of your business.
Paul Dodgshon is a Regional Partner in Business Partnership, who have been helping business owners sell their businesses since 1979. You can learn more about Paul here.
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For most in business, selling up is a rare, perhaps once-in-a-lifetime, experience. As a result, it is not surprising that most owners are unsure whom to turn to first, for advice and practical assistance. Here we look at the ‘usual suspects’ and to what extent you might need them. (more…)
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.