Changing Hands: Buying and selling a business1 Oct 2020
When either buying or selling a business, there are several considerations which should not be taken lightly.
Whether you are selling a business that you have worked hard at and nurtured or embarking on a new journey of entrepreneurship, you should make sure that you have thoroughly researched the market.
If you are thinking of buying a business or selling up, our MBA-qualified business consultant is on hand to provide an accurate business valuation and complete due diligence to ensure your transaction is a smooth and successful one.
Deciding when to buy or sell
No matter which side of the deal you’re on, timing is vital.
For sellers, taking into account the state of the business, prospects for growth and when you want to retire or move onto your next project, timing the sale is as important as it is tricky.
As a business owner, you should have been thinking about the sale of your business almost from its inception. This will help you to be prepared when the time for the sale appears.
For buyers, when to buy is part of the equation for the buyer too but is less complicated. This will mostly come down to your own personal circumstances – mostly financial.
Hiring a professional adviser
Just because you’re experienced in running businesses, doesn’t mean you’ll have the skill set – or indeed, time – to oversee the process of buying or selling one yourself.
Not everyone appoints a broker, but there are, despite the costs involved, persuasive reasons for doing so.
For sellers, Trying to sell your business can be a difficult task to take on when you are already running a business. You will need to keep your business running full tilt until the day you hand over the keys and trying to sell your business may take your focus away from this.
It doesn’t come for free but without professional help – in business valuation, handling and filtering enquiries, screening buyers, handling negotiations – you may struggle to find buyers or be short-changed in the deal structure.
For the buyer, a professional adviser acts as an invaluable buffer in what is an emotive process. They will also help you with paperwork and negotiations.
Preparing the business for sale
Before you sell your business, you will need to make sure that it is prepared for the scrutiny of potential buyers.
From tidying up books and records to refurbishing premises, even minor details could make the difference. These preparations will help to increase the value of your business and the speed of the sale.
Again, having an advisor or accountant on board is extremely beneficial and in our experience the contribution either of the above make in the preparation phase effectively pays for themselves in the value generated thereafter.
Businesses are most often valued by a multiple of profit.
Few sellers undervalue their business and many overvalue them, either through subconscious bias or a desire to get a strong return on their efforts.
There’s a simple way to avoid the distorting effects of cognitive bias: appoint an independent expert to value the business.
For buyers, ask the seller which method(s) they used to arrive at the valuation and double check their calculations with reference to relevant financial records.
And identify anything else, not accounted for in the valuation, that could make the business more or less valuable, such as disruptive consumer trends or technologies on the horizon.
Due diligence and confidentiality
Due diligence is a comprehensive appraisal of the business’s assets and liabilities and its commercial potential.
The period of due diligence tends to start after both parties have agreed a deal and price range, before signing a letter of intent, and usually lasts between 60 and 90 days.
For the seller, preparation is everything. You must provide documents and information promptly when requested, as delays could give the buyer cold feet.
Before the buyer starts the process of due diligence, you should go through all your records and your finances to make sure that there aren’t any red flags that could be off-putting to a buyer.
In the buyer’s case there are two obvious components: relevant paperwork – particularly the financial accounts – and the physical building, equipment, stock.
At this point we feel it vital to reiterate that while the strategies above do serve as a good guide and rule of thumb, we would advise you speak to a professional advisor or accountant - such as our highly experienced team - before proceeding with buying or selling.
The optimum route for any buyer or seller is to have a bespoke strategy in place, and that comes with talking to the right people. Get in touch with us today to discuss the next steps.