(1) DO Plan Your Exit Strategy Before Selling Your Business… DON’T Forget To Run Your Business
Selling your business will be a huge distraction. Just think of the hassle when raising funds and multiple issues unfold in your business.
It’s therefore crucial to maintain the day-to-day operation of your business because your sale price will suffer badly (even your chances of selling) if your trading performance stutters.
Plan your exit strategy as early as possible, understand how you will manage your business during the sale process and if/when you disclose to key employees that you’re selling.
Requires very careful handling!
(2) DO Prepare Properly… DON’T Overlook Simple Things
It follows that good preparation is likely to = increased value.
Part of the preparation process is to look at your business from a buyer’s perspective. Not always easy to do when you’re deep inside so consider asking someone else to take an objective look. Doesn’t need to cost anything, even friends and family can offer insight that you might not have seen yourself.
Clear up management loose ends and get your financial information up to date.
Don’t overlook simple or cosmetic improvements. Upgrade signage or improve tired reception areas. Like most things in life …. first impressions count.
Key Tip: Try to arrange the sale of your business just after recent trading results – particularly if they’re good!! If accounts are too historic they lose impact and particularly late accounts might indicate poor management.
(3) DO Investigate The Best Route When Selling Your Business… DON’T Trust All Advisors
Tons of people will tell you they’re experts at selling businesses. Tread with caution, particularly if you’re selling a smaller business. Linkilaw has articulated elsewhere our concerns about the quality of advice provided to the owners of smaller businesses about selling your business. Business transfer agents are a very mixed bunch and it’s an unregulated market with a lot of pond life swimming about. Google “business transfer agent” and you’ll get a flavour.
Like most things in life, you get what you pay for but even if recommended an advisor, we suggest you arrange a beauty parade and make sure they have a track record of delivery, particularly in your space.
Selling your business happens once and if you’re being represented by the inexperienced, deluded or decidedly dodgy then it will dramatically damage your sale price.
(4) DO Understand The Value In Selling Your Business… DON’T Ask For A Formal Valuation
It’s a cliche but like most, there is a big stick of truth in it …. the value of your business is dictated by how much a buyer is willing to pay.
Most pre-sale, paper valuations are irrelevant, particularly during for smaller businesses. Furthermore, the moment you put a price in front of a buyer then they will naturally offer less.
More important than a formal valuation is for you to understand where the real value of your business is.
Is it your workforce, IP or the strength of your order book? Have you been established and profitable for many years?
Do you have any contracts, long standing trading relationships or exceptional employees?
Nothing drives value better than good preparation and a talented advisor. Nothing destroys value more than poor preparation and a BS advisor.
(5) DO Maintain Confidentiality… DON’T Believe All Publicity Is Good Publicity
Confidentiality is always a tricky issue for business owners – when, where and how to release confidential information. Buyers want it all, sellers want to retain it all.
For some businesses the more exposure the better in terms of snaring interest however, confidentiality can mean different things to different businesses.
The clear risk is that leakage of information unsettles employees, suppliers & customers alike. Competitors may also take advantage.
Selling your business is not like selling a house and requires experienced management of confidentiality and anonymity.
For these reasons, initial sales material should ideally be anonymous and just provide threads of headline information.
Remember this about how and what to leak. Good quality buyers ordinarily know what they want and how numbers should stack up. Time wasters and snoopers tend to ask for much more than they need to form a view. If they dig too hard before showing any commitment, treat with extreme caution.
(6) DO Believe In What You’re Selling… DON’T Get Emotional
You need to inspire a buyer about the potential of your business.
You know more about your business than anyone in the world so assume for now you were buying your own business. What are the steps you would take? What would be your 100 day plan?
Develop a small marketing strategy or business plan that you can hand over to a serious buyer, unsure about the business, sector etc.
But then take step back, they’ll take their own view on the business and opportunity and what they would do with your baby.
Detach yourself from subsequent feedback as buyers may have different plans and may seek to criticise as part of a negotiating tactic. Remain calm, stay focused on your goal and respond positively. You want to sell, you don’t want to get emotional.
(7) DO Qualify Buyers… DON’T Always Sell To The First Offer
Buyers come in all shapes and sizes. There are genuine, motivated buyers, first timers, companies looking for synergies and seasoned buyers searching for market opportunities.
Unfortunately there is also a considerable retinue of time wasters, snoopers, competitors, dreamers, dabblers and the wildly unrealistic.
You need to be firm but fair with initial enquiries and make sure they prove their interest by signing a confidentiality agreement or by responding positively to your requests for information. The quality and detail of a buyers response can tell you a lot about whether they’ll eventually close that deal.
If they’re not interested in calling back or signing an agreement, they’re not going to buy your business.
Even if you use an advisor, make sure they provide you with a detailed buyer analysis document. Get to understand the types of people looking at your business and showing genuine interest. Even if you can’t sell at this stage, the types of buyer looking might help you understand what changes you need to make and even, if your business needs to do a small shift of emphasis to align with what the buyer market is looking for.
Also, goes without saying but, try to get more than one interested party and don’t always accept the first offer because if the business is in good health, there is likely to be another and potentially better offer around the corner.
(8) DO Be Candid… DON’T Release The Wrong Information At The Wrong Time
Buyers want everything and they want it now. Be candid but circumspect.
Try not to leak confidential trading information – key accounts, leases, employee details – until you’ve received a signed confidentiality agreement (which we can provide) or a clear sign of commitment.
Buyers (or their advisors) are often more experienced than the one time seller but genuine buyers tend to want to work with sellers, not against them. Makes no commercial sense for a buyer to act with hostility as they want the acquired business and probably the exiting owners, to be on side from day one.
The way a buyer (or their advisors) behave during the sale process will give you an instinctive sense of whether they will complete and/or be the right owners to inherit your legacy.
(9) DO Try To Reduce Your Dependency… DON’T Think It Should Run Itself
For some businesses, the owner can be deeply embedded in the business and can’t immediately detach themselves.
This creates a big risk factor for the buyer who might decide that you ARE the business and without you the value disintegrates. It’s a common misconception amongst smaller or owner operated businesses that it’s profitable and should sell at X multiple when they’ve overlooked how crucial they are to its ongoing profitability.
Think early about how you can delegate key duties and developing a management team who can run the business autonomously. If the business is heavily dependent on one person then buyers might insist on a lengthy handover period or defer payments until convinced they can operate without you.
If the business is overtly dependent on you, set yourself a holiday challenge. Get the business operating so smoothly under management that you can afford to take a substantial holiday and/or sabbatical. No better evidence to a new buyer about how smoothly it can run without you than showing that it did. You also get the business of a well deserved holiday!!
(10) DO Consider Seller Financing… DON’T Forget About Tax Efficiency
Sometimes a deal can stall due to gaps in price expectation (an expectation often falsely fed by a crazy pre-sale valuation) or the buyer not having enough funds to meet an agreed sale price.
There are lots of ways to bridge a price gap – earn outs, deferred, stock options etc.
A common method in the US (less so in the UK) of bridging this gap for smaller businesses is for the seller to help finance the deal with a deferred consideration. This involves accepting a down payment with the balance being paid over 1-5 year period with an agreed interest charge.
Sellers always feel uncomfortable with this option but if you can’t get a deal any other way then it has to be seriously considered. It’s a vehicle that helps to complete deals with a funding gap and opens the market out to more buyers and with that the potential of achieving a deal and even, longer term, of generating a higher sale price.
Key part of preparation is to liaise with your accountant about the impact of various sale structures. Know this in advance before entreating the negotiation. Delay on getting tax advice could impact on getting a deal closed as “time kills deals”.
(11) DO Include 11th Item In A Top 10 List… DON’T Forget To Chill The Champagne
Lots of other things we could say …. but it’s a top 10 list so here’s a bonus as we ramp it up to 11 do’s and don’ts when selling your business.
Selling your business is a reward for the risk and effort you’ve put in over the years and we hope this do’s and don’ts when selling your business list will help you achieve that.
The process of selling your business can be time consuming and emotional but when you do achieve that completion, enjoy the celebration, the champagne and the rest of your life.
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