I am often approached by Clients who come to me for advice on what their company is worth, and then explain they have a Buyer and wish to pursue a sale with them. “If it doesn’t work out” they say, “then I will come back to you.”
Business owners are selling an extremely valuable asset but unfortunately, they have little or no experience of selling a business. They don’t really understand the process and how to put themselves in the strongest position to get the best deal. The net result is that the eventual sale price, if there is one, is up to 20-30% LESS than the market price.
But, of course, human nature being what it is, we all think we know better and do not heed warnings until it’s too late. But be warned… don’t cut corners or it may cost you….and substantially at that.
Owners who try to sell their Company devote a huge amount of time to the process for meetings, giving out information etc. They often find themselves almost presuming a sale and take their eyes off their business due to time constraints, which ultimately affects the operations and effectively the bottom line. If the deal doesn’t materialise this also leads to a considerable loss in value of the business as well as loss of profits. They GROSSLY under-estimate the journey ahead, and the potential impacts on not only the business, but also on their personal life. Stress levels are often huge during such transactions, after all, ask anyone who has sold their business!
Part of selling a business involves strategic and tactical positioning; our market valuation is based on how we would strategically position your business on the marketplace and based on us handling the sale. This is because with our market knowledge we are able to highlight added benefits to the acquirer.
You are playing into the Buyers hands by exclusively offering the business to them and putting all your money on one horse. They can take their time, wear you out slowly and take you to a position of no return after several months, so that you are forced to take a reduced value, and that’s if they want to eventually buy the business at all. Your business becomes vulnerable the longer it is on the market. And of course, they are probably playing the same game with several other business owners.
How do you protect your business information, and ensure you disclose the correct documents at the right time? What needs to be in your NDA to protect your staff, client base and suppliers? What information do you use to get the best price and when do you use it? How do you objectively go through the negotiation stage without an expert third party? How do you counter offer without any experience?
“A reputable broker is paid when you are paid so he or she has as much motivation to sell for the right deal as you do”
You will employ a solicitor and an accountant, but their job is to advise you, not broker the deal. A Broker is a specialist who has helped numerous clients through this journey, and his or her job is to find a buyer, negotiate the best deal, liaise with the Buyers and their advisors as well as the clients, and get the deal over the line. Whereas you will pay your solicitor and accountant for their services irrespective of the result, a reputable Broker keeps the deal together until completion and is paid on results only. He is paid when you are paid so he or she has as much motivation to sell for the right deal as you do.
Going through a proper sales process with a reputable Broker ensures multiple Buyers and offers giving a Client choice. More often than not, when Clients come with a Buyer, they are very quickly off the scene when more acquirers are introduced to the opportunity. This offers choice, a better deal and a more committed Buyer, so you are not wasting time, fees on advisors and end up with leaving lots of money on the table. To illustrate this point, I recently sold an IT support company (you can find the details of the deal in my blog post Selling IT Company)
We had 4 offers put forward by different strategic acquirers and we managed to negotiate a deal which was almost 10% above the asking price with the preferred Buyer. Competition created this, and the deal was done and completed within 4 months of instruction, ensuring staff and clients didn’t find out until after completion.
More often than not, when going to market, the sales strategy may have to be changed, as heeding feedback from the market is key. How do you do this without experience and knowledge?
A competent broker will prepare a confidential marketing strategy for you to protect your company whilst you continue to operate your business at its most vulnerable time. They will prepare all the due diligence for you and create a comprehensive Information Memorandum highlighting the full financial benefits of an acquisition.
They will further reposition the finances to illustrate true profits. They will find other Buyers and vet then fully and ensure your business is entirely protected with a well-drafted NDA. They will negotiate each term for you to your benefit and use their expertise to put together the best deal.
A quality Broker will not only get you a better deal than you could achieve yourself and make you more money, they will also take away the stress of selling the business so you can continue to run your business and enjoy your personal life.
Would you like to discuss the sale of your business?
Book your free consultation with the author of this post Zach Dogar.