Thinking of selling your business?
Whatever your reasons for contemplating the sale of your business, the sales process itself requires clear objectives, careful planning, detailed preparation and the assistance of expert help and guidance.
To help you prepare, here are some tips to guide you through the process:
Assembling your team
When you buy or sell a home, take out a mortgage or make an investment, you will invariably engage the services of a professional. Buying or selling a business or raising external finance is no different. These are transactions that occur irregularly in the life of most business entrepreneurs and to embark upon such a transaction without the assistance of professional advisors would certainly invite problems.
In most transactions, the team will consist of a Corporate Finance (‘CF’) advisor and an experienced commercial lawyer. Some CF advisors offer taxation advisory services as part of the package and others don’t, so there may be a need for a separate tax advisor.
Typically, the CF advisor is the conductor of the orchestra and will know when to bring in the other team members. The CF advisor is also the primary contact point through which the key terms are negotiated, requests for information filtered, potential conflicts resolved and difficulties ironed out.
A good CF advisor will try to keep everyone on track, provide a sounding board for ideas and a shoulder to cry on (deals are often emotional!).
Valuation - how much is your business worth?
The valuation process is often the starting point for most sale mandates; but it is wise not to be fooled into believing that the CF advisor offering the highest estimate of value can necessarily deliver on that promise.
The factor that will most commonly impact a valuation is the underlying earnings of the business, but there are many other factors that can come into play.
A lot of time, effort, money and emotion will have been invested by the time you get to know the true market value, which is why it is better to select your advisor on recommendation, experience, openness, honestly and track record.
Types of sale
The “type of sale” is best addressed at the very outset of the project.
Whether it is better to sell the share ownership of the business or its assets will vary from business to business and is one area where good taxation advice is likely to pay dividends.
The main transaction types are trade-sales, private-equity sales, buy-ins and buy-outs (although permutations of these are not uncommon). They all have similar complexities, but the approach and atmosphere of a management buyout can be quite different to the others.
Any good CF advisor will be versed in the art of negotiating the deal terms. Indeed, this is one of the key skills they will bring to the table. In most cases the sellers will be called upon to work with the new owners after the deal has completed and it serves the interest of neither party for that new relationship to start-off on the wrong footing. I often say that if the sellers and the buyers end up equally grumpy with the CF advisor by the close of a deal, then it is probably a sign that he/she has done a good job. The inevitable arm wrestling is an important and necessary component of all deals if the negotiation of those issues is undertaken by the CF advisor.