Selling a business is a complex venture that involves several considerations. The sale also requires a lot of time and effort, and whether your business profits will rely on you establishing a good reason for the sale, planning the timing of the sale and the strength of the business’s operation. In this blog, we advise on how business owners can build a solid plan and make negotiations as successful as possible.
What are your reasons for wanting to sell? This is the first question a buyer will ask you. Of course, there are many reasons for a business owner to want to sell their company. Whether you are looking to start a new venture, want to relocate, or it’s time to retire, it’s important that you communicate your purpose to prospects.
As the saying goes, if you fail to prepare, prepare to fail. And the sooner you start preparing for your sale, the better. Early preparation will put you in the best possible position when it comes to negotiating by allowing you to improve your financial records, business structure, and customer base to make the business more profitable. Remember, your business will be attractive to buyers if it has increasing profits, consistent income figures or a strong customer base. Use this time to work at getting these attributes in place ahead of your sale.
Before a sale, it is vital to determine your business’s worth. This way, you avoid pricing it too high or too low. This means working with a business broker and accountant to establish an accurate profit before personal expenses . Planning for an exit may mean that rather than trying to reduce your net profit in order to pay less tax, perhaps by making large pension contributions, you leave the cash in the business to demonstrate a higher level of profitability.
Selling a business independently allows you to avoid paying a broker’s commission. However, if you are still an integral part of the day-to-day operations of your company, spending your time trying to get the most out of your sale is simply impossible. A broker will help free up time for you to keep the business up and running and allow you to keep the sale quiet whilst also getting the best deal. A good broker will offer a secure online portal so you can always monitor progress and feedback to ensure you are never out of the loop.
When selling your business, it is important to prepare your documents ahead of time. We recommend gathering your tax returns and financial statements dating back three to four years and reviewing them with an accountant. If you saw a significant drop in turnover during the pandemic, you may need to go back further to demonstrate previous trends and subsequent recovery. Also, start putting together a list of all the invaluable equipment you are selling with the business. Similarly, you will want another list of contacts related to sales transactions and supplies, as these will add value to your sale. If you can, dig up any relevant paperwork, such as your current lease and create copies ready to distribute once you have financially qualified prospects.
Create an information pack which gives an overview of how you run your business and include an up-to-date operating manual. If a prospect wants to view the business’s premises, ensure it is presentable. For example, if some of the equipment in your workplace is broken or run down, you should fix or replace it before the visit.
Due to the challenges of finding a buyer, a business sale can take time. The average timescale is usually around nine to twelve months. So, once you eventually find two to three prospective buyers to safeguard you in case one deal falls through, it becomes important to keep the process moving.
Do this by keeping in touch with your potential buyers. Also, determine if your potential buyer is pre-qualified for financing before giving out information about your business. If you plan to finance the sale, work out the details with an accountant or lawyer to reach an agreement with the buyer.
This is the time to stand firm on the price you set out to get for your business. Of course, you can be flexible, but stay as close to your desired figure as possible. Then put any agreements in writing. It should be your priority to ensure your potential buyer signs a nondisclosure or confidentiality agreement to protect your information immediately after their first enquiry comes in.
Ideally, you should be speaking with your financial advisor before the sale completes to begin to understand the options you have available with the lump sum you are going to receive. Work with them creating a plan outlining your financial goals and learning about the tax consequences of different investment strategies. Doing this will allow you to see the long-term benefits, such as using the money to get out of debt or saving for retirement.
Using these tips, you should be able to better understand the selling process and find potential buyers or prospective clients to ensure you get the best price for your business. For more advice on buying or selling a business, please get in touch on 01606 535 024 or enquiry@business-partnership.com(Opens new window).
If the past few years have proved anything, circumstances can change at the drop of a hat when you own a business. Preparing for foreseeable expenses such as quarterly VAT bills, or corporation tax can be accounted for in the business plan. Unforeseen situations, like the pandemic, Brexit, war or wholesale shortages can leave your businesses with serious long-term cash-flow issues, which ultimately forces some business owners to sell. So, here is how to sell a business that has started to fail due to unforeseen circumstances rather than historically poor performance.
Accepting that your business has started to fail is always difficult, especially when things go wrong that are out of your control. You will have thrown your full weight behind ideas and strategies to turn things around, but, unfortunately, nothing has been able to pull you back from the brink, and now there is no option other than to sell. There is, however, still hope of getting a reasonable price for your business.
When selling any business, the first thing to do is find its value. When valuing a business that has started to fail, an excellent place to start is to find out the total cost of the business, including any required investment in equipment or refurbishment of the building. This is an entry point for anyone interested in that business. If you own a retail store, for example, the good news is your unit may be more valuable than you realise, as good contracts and well-maintained equipment or other similar assets can help the price of a business.
If the business you are trying to sell is growing and the turnover is increasing but currently unprofitable, you will need to provide some forecasts to show that the future is looking better. Suppose you are facing temporary issues, such as roadworks which reduced footfall to the business but is expected to recover to previous profit levels soon. In that case, you might take a 15 per cent discount from your valuation. You will then be expected to provide historical accounts and fully explain the situation to give the buyer a full understanding of the circumstances. If you can, we recommend researching your industry and finding out what other struggling businesses have sold for.
To ensure you succeed in negotiating the sale of your failing business and get the very best deal, it is crucial to have all the necessary skills required to close your sale. Selling a business is a process that takes finesse and sensitivity, as well as grit.
Despite you being on the back foot when selling a failing business, try not to let on. First, we recommend you set out clear negotiating goals for selling your business to help you answer critical questions and guide your negotiations when selling. Then put together a negotiation strategy. By being proactive and planning a strategy, you will stay ahead of the curve. Also, when in communication with a buyer, despite the fact that you need to sell, make it clear you are willing to walk away from a deal if it is not up to scratch. As well as this, always try to lead the discussions. This way, you will be in the driver’s seat throughout the sales process.
It is also crucial to ensure you know your numbers and everything about your accounts. Have you ever seen Dragons’ Den when the person pitching cannot remember their figures? Never be that person. A prospective buyer usually requests to see records of three years’ worth of trading, so even if it’s a while off selling, make sure your accountant can advise on how best to present statements. Items of interest could be changes in profits, a consistent but varied client base, and regular revenue growth.
Finally, when it comes to selling your business, believe in yourself! Your business has not started failing because you are a bad owner; it started failing because of events no one could predict. If you are not upbeat, positive and, most importantly, passionate about your business, it might be more difficult to sell. Keep in mind all your business’s best assets and ask yourself what would interest your prospective buyer.
There is a lot more to the art of selling a business that has started to fail due to unforeseen circumstances than just hanging a price tag on it and hoping for the best. Following these tips, you should have no problem maximising the sale price. For more advice on buying or selling a business, please get in touch with your nearest office.
Despite many retail businesses suffering throughout the pandemic, is 2022 shaping up to be a great year to sell a retail business? With buyer demand growing, sellers are in an ideal position to negotiate with the many entrepreneurs seeking business ownership.
According to BizBuySell’s Insight Report, business for sale transactions experienced steady growth in the first quarter of 2022, rising 24% over the previous year and just 3.7% shy of Q1 2019, long before COVID-19 shocked the market1. Median sale prices have also continued to sit at record levels, up 6% over the previous year to $345,0001. These statistics, which come from the USA, prove that not only is there a demand to sell, but buyers are willing to pay a premium for businesses that are performing well. We expect a similar movement to take place in the UK over the next couple of years.
So, while many businesses in retail experienced a torrid time over the past two years, some businesses, like zero waste shops, pharmacies or other health stores, have proved invaluable. Therefore, these businesses have become the most sought-after among buyers in this market because they are less likely to be impacted by economic uncertainty. The retail businesses that seem to be performing well in sales often share three common traits:
It is no secret that with the Great Resignation, more individuals are choosing entrepreneurship over returning to the 9-to-5 job. According to PwC’s Global Workforce Hopes and Fears Survey 2022, one in five workers plan to quit their jobs in 20222 in the pursuit of higher salaries or to start a family-run business. And with all the benefits attached to running your own retail business, like a zero waste shop or a health store, it is easy to understand why the demand for retail businesses is expected to remain strong in 2022.
Zero waste stores are just one example of retail businesses performing exceptionally well in recent times. These businesses are often mainstays in the local community, and capture the ever-growing environmental consciousness of the shopping public. With an increasing number of foods, toiletries, cleaning products and sustainable packaging options they provided a lifeline to many people throughout the pandemic who didn’t want to be in crowded supermarkets. As well as their popular locations and growth potential, these businesses make good levels of turnover and profit, making them the ideal business for first time buyers.
Right now, 2022 has proven itself to be a seller’s market. Over the past two years, many business owners have chosen to wait to sell their businesses. In turn, this has created an imbalance in the market because buyer demand exceeds the supply of available businesses for sale. We can expect median sale prices to continue growing as premium prices are being paid for strong, successful businesses. So, 2022 could be the perfect time to sell your retail business – as the effects of the pandemic fade and more people retire and exit their businesses, the market is expected to become more balanced.
To ensure you succeed in negotiating the sale of your retail business and get the very best deal, it is crucial to have all the necessary skills required to close your sale. Selling a retail business is a process that takes finesse and sensitivity, as well as grit.
If you’re considering putting your retail business on the market, the first step is to carry out a business valuation to calculate the value of your business and determine a starting point for your sale price. At Business Partnership, we recommend you set out clear negotiating goals for selling your business to help you answer critical questions and guide your negotiations when selling. Then put together a negotiation strategy. By being proactive and planning a strategy, you will stay ahead of the curve. Make it clear you are willing to walk away from a deal that isn’t right for you and always try to lead the discussions. This way, you will be in the driver’s seat throughout the sales process.
It is also crucial to ensure you understand and know everything about your accounts. Prospective buyers usually request to see records of three years’ worth of trading, so even if it is a while before you consider selling, make sure your accountant can advise on how best to present statements. Items of interest could be increased profits, a consistent but varied client base, and regular revenue growth.
Finally, when it comes to selling your retail business, believe in yourself! No one will want to buy your business if you are not passionate about it. Keep in mind all your business’s best assets and ask yourself what would be of interest to your prospective buyer. Do not doubt yourself and let the success of the business do the talking.
By following these tips, you should have no problem selling in 2022. For more advice on buying or selling a business, please get in touch with our Regional Partner closest to you.
1BizBuySell, 2022, BizBuySell Insight Report
2 PwC, 2022, Global Workforce Hopes and Fears Survey
We have boosted our operation in the North of England with the appointment of a new regional partner for West Yorkshire.
Leeds-based Philip Drazen (above) brings more than 35 years’ experience in advising companies on their route to exit to his new role. He will be assisted by business partners Nigel (right) and Tom Jones, who have worked in the refrigeration and air conditioning industry for over three decades and have considerable knowledge of owning, selling and buying businesses.
A former managing partner of a regional law firm, Mr Drazen is a well-known and respected figure in West Yorkshire and boasts a vast network of connections through his successful and continuing Business Exposure Groups and Entrepreneurs Club ventures.
“I’ve sold businesses for the last 22 years but have never done it with the support, infrastructure and database that Business Partnership provide as one of the largest independent companies in the sector,” he said.
Mr Drazen, who will be using his skills to focus on SME business to business sales, including traditional and tech companies, said that the pandemic has resulted in business owners falling into one of two camps.
“Many people have been re-energised as they have seen competitors disappear and are now planning to grow by acquiring businesses. However, there are a significant percentage who have re-evaluated their priorities and are now keen to sell. Both present myself and Business Partnership with lots of opportunities to guide them through a difficult and emotional process,” he added.
Selling a business can be a big step in someone’s life and one that needs careful consideration. The prospect of valuing your business can be daunting, especially if it is not making a profit, but there are plenty of resources to help you. So, here is some advice from national business broker, Business Partnership, on how to avoid valuation traps and find the value of your business, no matter your situation.
When valuing a business for the open sale market a multiple of net profit is often the most important guide. That multiple can very much depend upon the strength of the brand. The other matter business owners have to consider is how much of that sale price ends up in your pocket as the owner. A business sale will also incur other fees to any professionals you use – broker, solicitor, accountant etc – and maybe costs for a refurbishment to bring a retail site up to latest brand standards. All these costs should be detailed.
When it comes to valuing your business, the first thing to consider is whether the business is performing well or not. Determine the true net profit of your business by bringing your accounts up to date. Then get both annual accounts and year to date management accounts to show a buyer what the profit is. It is hard to sell a business without these figures. “Trust me we are making money” will not work for most buyers and certainly not their funders.
A broker would then apply a multiple to this profit. The multiple depends on several factors, including the brand strength, stability of the business’s cash flow and the forecasted business growth. A profitable business is usually valued at between one and five times the net profit. An existing and already profitable business has that income, so remind your potential buyers. Remember, business resale valuations are never exact, and you may have different expectations for the business, so the next step in the process is negotiation.
Unfortunately, not all businesses succeed so how do you value one that is failing? A good place to start is to find out the total cost of similar businesses in your sector and any required investment in equipment or refurbishment of the building. This is an entry point for anyone interested in your business. And if you have a retail business, the good news is your unit may be more valuable than you realise, for example good contracts and well-maintained equipment or other similar assets can help the price of a business.
If, however, your business is growing and the turnover is increasing but currently unprofitable, you will need to provide some forecasts to show that the future is looking better. Research your industry and finding out what other struggling businesses have sold for. Speak to a professional insolvency practitioner who can advise on this.
Whether it is because someone is planning to take a step back, or ready to let go and try something new, almost every business owner reaches the stage where they want to sell their company. It is crucial to carefully design your business sale that you do not set unintended valuation “traps”, which could hinder the effectiveness and increase the costs of your transition.
When you have spent years of hard work and finances building your business, it is often difficult not to see it through rose-tinted glasses. However, look at it from a buyer’s perspective. Forget that you know everything. Assume your buyer knows nothing. Ask yourself, if you were buying the business, would you be offering a top price or discounting it?
Another pitfall in the sales process is thinking your business is more valuable than it really is because it has a high turnover. Unfortunately, this is not the case. A business’s value comes from profits, not turnover. So, when setting an asking price, make sure you factor this in; otherwise, the likelihood of selling your business is massively reduced.
Try not to be overhasty when accepting a higher-than-expected valuation. If a great valuation is provided by a broker, question how it was arrived at. If you are offered a price which seems too good to be true, it often can be unachievable.
When it comes to having your business valued, you often have the chance to get either a free valuation or a paid-for valuation. Both have their place in the business world, but a paid valuation will go into much more detail, which is far more beneficial when it comes to something important, like selling your business.
Finding the value of your business is an intimidating process if you do not know what you are doing. So, consult an independent business broker for advice when it comes to selling your business. It is also worth discussing the resale with an accountant or lawyer with experience in the franchise industry. They will be impartial and able to offer support during the negotiation discussions.
By following these steps, you will be able to find the value of your business, no matter your situation. For more advice on buying or selling a business, please get in touch with your local Regional Partner.
This article was originally posted in December 2020 and has been updated to reflect the current market.
Seasonal businesses follow a cycle in which activity peaks at certain times of the year. If you’re thinking about selling, there are a few things to keep in mind to prepare to sell your seasonal business at the proper time and for the highest value.
At Business Partnership, we believe that getting the timing of your business sale right can make a significant difference to the offers you receive, helping you to maximise your profits and sell successfully. Here are the three tips for business owners to consider when selling their seasonal business.
Patience is a virtue when it comes to selling a business because the process can often be long and drawn out. However, this does allow you plenty of time to prepare yourself for the sale. The main advantage of selling a seasonal business is that you can use your off-season to get your business ready. With the prices and demand of a seasonal business likely to peak near the start of your busy season, you should start preparing for the sale ahead of time. In the off-season, focus on maximising the value of your business by investing in essential equipment, tackling any potential dealbreakers, and making sure the business is ready to hand over.
No business can be valued on its performance in the last few months of sales or the averages for the year, so it is essential to have monthly or even weekly sales breakdowns to hand for any interested buyers. A buyer could be parting with a large amount of money, so they need to know how reliable your in-season sales are, how they build to their peak and how quickly they decline. For example, this would be gradual for a campsite. Although, if you sell Christmas trees, this peak and decline will all happen within one month.
When you’re ready to sell your seasonal business, one of the most important things to consider is the timing to ensure you get the maximum sale price. For example, if you are trying to sell a campsite or caravan site business at the end of the main holiday season, a buyer has to take into account that they will have little or no money coming in over the winter and part of the spring the following year. Maintenance and improvement work may also take place in the off-season to minimise disruption during the peak season, and this may affect the sale and value of the business. The ideal time to sell a business such as this is typically at the beginning of a peak season as buyers are more attracted to a profitable and growing business and the seller will achieve a higher price
Of course, there are always exceptions. Buyers are unlikely to choose a business that needs improvements at the start of the peak season as they will miss a season of profits. In this case, selling during the off-season can be more effective. However, it is also worth considering whether you can make the improvements yourself so you can sell for a higher price when business is about to boom.
Always look to diversify and evolve your business. Try to bring in new innovative ideas to boost income throughout the off-season. For example, improving your website, creating content for your blog, growing your social media presence, and finding creative ways to reach potential customers. Then push all these buttons once the season heats up again to help grow your database of contacts. You could brainstorm one-off events, services and products that would sit well in your business and fill the off-season income gaps. For example, if your business traditionally supplies wedding hampers, why not introduce baby hampers, Christmas hampers or summer festival hampers to boost income and, therefore, the value of the business.
When it comes to selling your seasonal business, there is not just one season. A clothing business generally has the four seasons of spring, summer, autumn, and winter where the collections change. Gift card businesses can have multiple seasons, with popular celebrations, such as Valentine’s Day, Mother’s Day, wedding season and Christmas.
By understanding the seasonality of your business and following these tips, you can significantly increase the offers you receive when selling your seasonal business.
For advice on buying or selling a business, please find you local office.
With the pandemic forcing people to consider how and where they work, more businesses are going on the market now than in recent years. So, to ensure you succeed in negotiations and get the very best deal, it is crucial to have all the necessary skills required to close your sale. Selling a business is a process that takes finesse and sensitivity, as well as grit.
Below are five key skills for negotiating the sale of your franchise.
As with anything in life, if you fail to prepare, you may as well prepare to fail. So, setting out clear negotiating goals for selling your business is massively important. By creating a plan, or a set of goals, you will answer critical questions that will guide your negotiations when selling. Think of it like this: if the buyer plans and you do not, who will likely have a better outcome?
To find your negotiation goals, consider the best possible outcome for you. For example, what is your business worth, and what could you sell it for? What’s the cost of a new business and what makes your business re-sale more attractive? It is essential to be honest with yourself at this stage – there is no point in valuing your business at a ridiculous price because it just will not sell. However, you do not want to undersell yourself either. So, establish what you could realistically ask for, and once you have this number in mind, decide on your bottom line. This is the number you will not go below. By doing this, you create a target in your head to aim for.
The final step is to identify a plan B. This is your best alternative to a negotiated agreement. I would recommend getting this in place before you begin serious negotiations because if negotiations fall through, you can still protect yourself, your family and your business.
Once you have ascertained that your buyer is qualified financially to buy your business, it is time to put together a negotiation strategy. This strategy is vital because when you get your negotiation strategy wrong, you can lose the sale instantly. By being proactive and planning a strategy, you will stay ahead of the curve in negotiations.
First off, make it clear that you are always willing to walk. So, do not go and grant a buyer exclusivity at the first meeting. If a buyer knows you need a sale, they have leverage and can squeeze you until there is very little value in a sale for you. But if you are willing to walk and have other options, and a buyer knows it, you start on a more level playing field. Your time is important. If you are getting pressed, communicate to the buyer that you look forward to working with them, but you do not need to.
Next, try to lead the negotiation. Many sellers sit back and wait for the buyer to drive the sales negotiation. But top-performing sales negotiators are almost twice as likely to take the lead. The rest often play catch-up and react instead of leading the negotiation to a successful conclusion. Sellers should lead. They should set the agenda for meetings, go first with offers and ideas, and go first with sharing objectives and concerns.
When looking to sell a business, you must be honest about the condition and potential of your business. However, how you present information will be integral to success. Remember – the more you say, the more you give away. So, whilst everything you say must be truthful, you do not need to say everything. Being too open can leave you with less leverage. And because the initial meeting with potential buyers is key – making a mistake by saying too much at this stage is hard to rectify and will generally result in failure or receiving a lousy offer. There is a real skill at disclosing all salient facts, especially the tricky ones, without losing the attraction of the business for sale.
Picture this: You are selling your business with the aim of moving away in six months to start a new life, but to do this, you must sell the business. Suppose you accidentally share these post-sale plans with your potential buyers. What is preventing them from holding up negotiations until the last minute and offering a reduced price that you may be forced to accept? There is a fine line between reassuring your buyer that you are offering a bona fide opportunity and giving them the upper hand.
Once in negotiation with a buyer, you need to get to know them. Don’t worry, this doesn’t mean becoming their best friend. But understanding your buyer’s needs increases the chances of successful negotiation and will help you leverage a better deal.
When it comes to selling a business, it is rare that you will know your buyer personally. This means that you will not know what they value most, how exacting their standards will be and how easy or challenging they will be during negotiations. So, to gain the upper hand, I recommend asking questions to find out the buyer’s motivation to purchase your business, their readiness, willingness, and ability to transact, and the time frame in which they hope to do the deal. Also, ask if they have prior experiences in the market and what they understand about the market’s trends. The more you know about the buyer, the better you can negotiate.
I suggest asking these questions early in the negotiation when the buyers’ enthusiasm is high. If you leave these questions too late in the process, you may come across as trying to oversell the business and damage negotiations.
Believing in yourself and your business is perhaps the most important thing a seller can do when entering negotiations. Why? Because no one is going to want to buy your business if you are not passionate about it. Keep in mind all your business’s best assets and ask yourself what would be of interest to your prospective buyer. So, do not doubt yourself and let the business’s success do the talking.
There is a lot more to the art of selling a business than hanging a price tag on it and hoping for the best. Work on these five negotiating techniques and you will be well on the way to selling your business.
For advice on buying or selling a business, please get in touch with your closest office for a free and confidential discussion.
Business owners can go through all kinds of emotions when selling up, but how you feel about exiting your business could all depend on three things. Firstly, your reason for selling, secondly, how well the sales process goes and, finally, your personality. Some people cope with change well or are excited about their plans for the future, but others can find the process unsettling or upsetting.
Regardless of what you envisage for your next chapter in your life, there are key factors that will lead to a happy and lucrative exit from the business’s day-to-day operations. However, not preparing adequately for an exit can often lead to feelings of regret. In fact, 75% of owners who sold their businesses say just one year after exiting that they wished they had never sold it1. To avoid being part of this statistic, here are three top tips on how you can prepare to sell your business and minimise the emotional impact.
In most cases, there are a combination of factors that are either “pushing” you away from your business or “pulling” you to something else. Push factors are legitimate reasons to exit your business, while pull factors are things you want to do after leaving the business.
An example of typical push factors forcing many business owners to step away from work include reaching retirement age, feeling the business has reached its peak, developing health issues, or just wanting a break and to reduce stress. Alternatively, things that attract business owners to leave a business could be that they would have more time with friends and family or could make a real difference in a new business.
The happiest departures happen when there are just as many compelling pull factors as push factors. So, find five minutes and write out a list of all the elements that make you want to exit your business. Then make a list of all the things you are excited to do after leaving your business. This will help you make peace with exiting the business.
The ideal scenario does not always happen when exiting your business. So, aligning your exit with why you are leaving is the best way to approach selling your business and reducing the emotional impact. Some examples of the most common exit types can be selling a business outright, going into liquidation, transferring the business over to a family member, or going through a management buyout.
One example could be that you have a health issue and need to exit the business quickly. In this instance, the best exit strategies for you would be to sell outright; you could ask if one of your managers wants to buy you out or even transfer the business to one of your family members.
If an existing business’s value was determined by the owner, it would most likely be priceless. However, the ultimate judge of your company’s value is the market itself. No matter how much you want for your company – or what you think you need – if the market says the business is not worth that, then you are out of luck.
So, as well as having your business evaluated to understand what it might be worth to a third party, there is another calculation you should make, which is to understand what the business is worth to you. When the market valuation and your personal valuation coincide, it may be time to consider an exit. However, the price you are willing to accept could depend on why you are exiting the business. For example, if you are looking to retire, you will want to ensure you have enough investable assets to create the income stream you need to fund your retirement. If you have decided to exit your business because you are bored and want to move on to another project, you may want to sell your business quickly and would be willing to take a discount.
When looking to exit your business, ensuring you have dotted the i’s and crossed the t’s is essential to an exit with no regrets. Work out why you are exiting the business and then estimate what you think the business is worth. Once you have considered all factors and have a number you would be happy to accept, then you are ready to sell your business.
It is equally important to be honest with yourself. Have you established how much your business is worth to you? Do you have a contingency plan in place for once you are out of the business? Are you mentally going to be able to detach yourself from the business? Have you considered how your employees will be treated when you exit your company? If you want an exit with no regrets, these are all important questions to consider. Of course, only you will know the answer to whether you are prepared to sell your business or not, but this advice will go a long way in helping you prepare.
For advice on buying or selling a business, please get in touch.
1 The State of Owner Readiness Study 2013 by Exit Planning Institute
When the time comes to sell a business, most owners would probably say that it’s their goal to sell or transfer their business in order to fund their retirement or finance the next stage of their career.
Determining the market value of a business is one of the hardest to put a price on, so owners should take the time to understand what their business is really worth and put themselves in the buyer’s shoes to find out what they want.
Selling a business will probably be the largest financial transaction many owners will carry out so it’s even more important that they get the best price for it. Sometimes, all you need to do to see your business rise in value is to wait for the right market to sell it in, but there are many more proactive ways to increase the value of your business prior to putting it on the market.
Understanding your company’s value becomes increasingly important and it depends on a variety of factors, such as past profitability and asset value. In financial terms, the value of any business is the current worth of its future cash flows for the prospective buyer. There are also intangible factors to consider, and often provide the most value, such as customer goodwill and intellectual property.
You only have one opportunity to sell your company so it’s vital that you make your business as appealing as possible to buyers and they feel they can receive a return on their investment. Here are some factors that will help increase the value of your business:
Before talking to potential buyers, you will need to be clear on the contracts you have in place, whether its the lease on the building, customer or supplier contracts. It might also be worth renewing any key contracts as this might make the business more valuable and check that customer contracts allow for change of ownership – otherwise they may need to be rewritten or a clause added to ensure they’ll carry on after you sell. Securing loyal customers will have a big impact on the company’s value.
Having reliable suppliers will ensure continuity for the business, so it is equally important to make sure their contracts are up to date and maybe consider diversifying your supply chains. Having more options can make the business better at coping with the unexpected, which will enhance its value in the eyes of potential buyers.
A company’s competitive advantage is the reason customers buy from them instead of their competitors. It is vital that businesses know their competitive advantage and then they protect and promote it. High quality, innovative products or services, coupled with exceptional customer service can help differentiate a business from its competition.
Every business should have a unique selling point, also known as USP, and this is extremely important to portray in all marketing efforts, whether that includes customer testimonials on the website, creating short videos for social media channels or doing PR and blogs to raise awareness. Speaking to your current client base would also provide interesting insight as to why they chose your business over another and then this information can be used to attract new customers. Remember, the more revenue a business makes, the more a business is worth.
Having a skilled and experienced team may be the factor that makes a business the most valuable and be more attractive to a wider range of buyers, especially those with less experience in the sector. By retaining these employees, it will make the transition much easier and the business will continue to generate profits from day one. It can also help your employees to accept and benefit from the sale.
A company that unfailingly generates higher profits and cash inflows will influence buyers as they will like a business that can be lucrative in any type of environment. For example, if a company grew both sales and profits during the Covid pandemic, while other firms in the same industry struggled, it will be more valuable than the competition and more appealing to buyers.
Businesses with established recurring revenue streams are more appealing to buyers, and in some cases, significantly increase the value and sale price of the business. Buyers can be confident with recurring revenues that there will be guaranteed cash flow for the business and more stability when it comes to forecasting revenues and creating budgets. There will also be reduced risk and more opportunities for growth, particularly if the buyer believes they can grow recurring revenue in the future.
Building the value of a business before a sale will be hugely beneficial and it can pay off in the form of a higher sale price. It may simply include making changes, or simply uncovering existing value that you can promote to buyers. By increasing the value of your business before you sell will ensure you have increasing revenue and profits, as well as a strong management team, quality products and services and strong processes and procedures.
For advice on buying or selling a business, please get in touch with your closest Regional Partner.
Not all business sales go to plan. They take time, but if you begin to feel left out in the cold, with a general lack of communication or activity, it’s time to get your sale back on track. In this situation, timing is critical.
Below is some helpful advice on how to keep your franchise sale on track:
Firstly, don’t think the worst or start to panic. Silence doesn’t necessarily mean the buyer no longer wants to purchase your franchise. There could be an honest and simple reason why the sale has stalled.
Sometimes life just gets in the way. How many times in your life have your priorities changed due to unexpected events? We’ve seen sales stall due to a buyer taking a holiday, falling ill or a change in their personal circumstances. Often, all it takes is a few phone calls to understand the reasons for the silence and get the sale back on track.
Having identified why the sale has stalled, consider if you’re the best person to get involved in resolving issues. Sellers can often be too emotionally involved in their business to see the situation objectively. Yes, you have the best interests of your business at heart, but could you end up confusing matters further? A neutral party like a business broker might be better placed to act.
As soon as you accept an offer, agree a deadline for completion that your accountant, solicitor, and business broker, plus any other important parties such as your landlord can achieve. This will ensure everyone is heading in the same direction. Don’t make promises you can’t keep! Communicate accurately and always deliver what you say you will when required. Always keep all parties in the loop as you head towards completion day. A breakdown in communication is a common factor in stalled sales.
The moment a sale breaks down is when the true value of appointing a business broker comes into play. Your broker will have had numerous conversations with both sides in agreeing an offer to begin with and will use their negotiation and diplomacy skills to optimum effect. Part of their role is to keep the business sale moving and they will investigate on your behalf the reasons why things aren’t going to plan.
Another reason why business sales break down is because something simple has not been delivered. You, your broker, and other professionals need to stay on top of key actions and delivering essential documentation such as management accounts, supplier, and employee contracts, to guide your business to a successful sale. Business sales can stall for all manner of reasons. Quibbling over ownership of a web domain is one challenge that is becoming more common. Get your documents in order so you know who controls what.
Working together, sellers and business brokers combine knowledge and experience to support a business sale through to completion. There will be instances where a sale cannot progress to completion, but we’re happy to say, in our experience such cases are rare. If this happens to you, get your business back on the market quickly and always have a binding confidentiality agreement in place with your original buyer.
If you’re looking to kick-start your business sale and would like more advice to get it back on track, get in touch with your nearest Business Partnership office.
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.