Once a decision to sell your business has been made, the next stage is to carefully consider the process. Whether the sale is urgent or not, a lack of planning and understanding of the options available may well lead to disappointment in the final outcome. It does not matter whether the business is a one-person operation or has multiple shareholders, with or without staff, a strong track record of sales and profits will always attract potential buyers.
A commonly chosen route is to engage a business broker. However, this option can often be expensive and cumbersome, with a great deal of emphasis on the preparation of due diligence materials. Business brokers don’t necessarily have adequate knowledge of values of businesses in a particular market sector and end up applying inappropriate calculations especially for smaller companies. Once you sign up with a broker, it is not dissimilar to using an estate agent and you have little control over the quality of the leads and can easily end up wasting a lot of time and effort.
When considering a sale due to unforeseen circumstances, such as illness, divorce or financial difficulties, it is important that the reason is not disclosed to avoid adversely affecting any potential offers. Many owners receive unsolicited letters from ‘interested parties’ eager to buy their business. These companies or individuals are often ‘fishing’ for distressed selling opportunities and seek to have conversations to establish the motivations for a sale. They also often seek to finance a purchase out of future generated profits, if they can. Using a business broker can be helpful where a sale is unexpected and distressing as they can handle the entire process on your behalf with no need to engage directly with interested parties.
A more straightforward and cleaner route would be to sell the business to one or more existing employees or to a competitor within the industry. Both options have their merits and which one to go with depends on whether the sale is urgent or can be planned in advance, such as in the case of a retirement. If the sale arises unexpectedly, employees can generally be trusted and may show genuine understanding of the unfortunate circumstances. This option has several benefits. Firstly, the current employees are already familiar with the company’s operations, culture, and values, which can provide a sense of continuity for both the business and its stakeholders. There’s a higher likelihood that they genuinely understand the reasons for the sale and may be more invested in maintaining the company’s success and reputation. This can lead to a smoother transition for customers, suppliers, and other business relationships. Selling to a competitor limits the time-wasting factor but, be prepared for the valuation to be based on a mixture of current and future profitability and the likelihood that the dynamics of your involvement during the selling period may well change and not necessarily for the better. For example, the competitor might want to integrate your company quickly, which could lead to changes in management, operations, or even layoffs. It’s essential to be prepared for such possibilities and ensure that any agreements made during the negotiation phase consider the well-being of both your employees and the company’s long-term prospects.
In most cases, business owners aim to sell up in the most tax efficient way to capitalise on what has been many years of sweat and toil and to go with what appears to be the best financial deal. However, what may seem like a good deal at first glance, may not necessarily be the case. Seeking advice from multiple sources, careful consideration and a clear vision of your desired outcome for the business are crucial. The ultimate goal is to achieve as many of these objectives as possible.
The structure of any deal is key and having a thorough understanding of the available options and their individual merits and choosing the right one, is often more important than the price. Remember, all that glitters is not necessarily gold!
Paul Green is Managing Director of the Galpeg Network which provides back-office support for promotional merchandise distributors.
Published on: July 5th, 2023
