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Selling your business

There’s no single “right” blueprint for selling a business.  But here’s some food for thought for those contemplating taking to market something which may well have taken years or even decades to build.

Identify all possible markets  –  This may include:

  • Third party entrepreneurs
  • Existing businesses who want to diversify
  • Existing competitors (high caution needed here)
  • An internal sale, or management buy-out

How much is the business really worth? –  Business valuation has notoriously been described as more of an art than a science.  However, a lot of science usually comes into play before the art can be applied!  In particular (by way of a few examples) what are the norms for the industry sector in valuing the goodwill or other intellectual property elements of the business?  Would you do better to strip out certain elements of the business, or assets, and dispose of them separately?  What are the true underlying values of stock and work in progress?  What impact will future obligations and contingent liabilities have on the value?

What will be the structure of the deal?  –  Think through what will bring you the best result.  What level of earn-out are you prepared to agree to give assurance to a buyer?  Will they want your time as a consultant for a period going forward?  Conversely, do you really want to make a clean break?  How will a buyer finance the deal?  Is there anything you can offer to help with that?

Prepare the business for sale  –  Go through each element of the business and consider carefully what will help or hinder the sale process.  Finalise negotiations for new contracts.  Resolve uncertainties and liabilities.  Ensure there is a robust management structure to assure continuity.  Be ruthless in your preparation.  You need to look at your business through the eyes of a potential buyer, so don’t fall into the trap of defending your own shortcomings.

Prepare for due diligence  –  This is where, just when you think you have a deal pretty well sewn up, solicitors and accountants for the purchasers will get inside with a fine tooth comb, looking for any and every potential problem.  In many cases it may be useful to have your own team go through the process first, so that any difficulty can be foreseen and (as far as possible) tidied up.  It is also a good signal to a prospective buyer if you can hand over a prepared due diligence pack which shows them all the stones you have looked under.

Assemble the right team of advisors  –  You will need to put together an appropriately experienced team of solicitors, accountants, and possibly specialist advisors, to guide you through the whole process.  On the other hand, to be blunt, make sure you are not paying inflated fees for an overblown box-ticking exercise and unnecessary documentation, which are not real requirements in relation to your own scale of business and circumstances.  You may want to check with trusted advisers or business contacts before picking your team.

Keep it secret  –  One of the hardest parts of the process may be striking the right balance between reaching out to all potential buyers, whilst at the same time protecting the ongoing business.  In general, it is seldom a good idea for your customers, suppliers, or employees to know that you are trying to sell the business, until they can be given the reassurance of a “done deal”, with clear structure and new contacts already set up.  The approach to sale must be managed on a very strict “need to know” basis.

Above all, allow plenty of time  –  The process of selling a business can typically take a year or more from setting wheels in motion to signing up on the deal.  Preparation, in its broadest sense, may need to start much earlier than that.  For those planning to sell up on retirement, for example, we would always recommend you begin to think about preparatory aspects as much as five years ahead.  You will only sell this business once  –  it’s worth making sure you get it right.

 

 

 

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