Having sold a company with my husband and another one before that, a friend asked me yesterday how one goes about selling a company, where you start and it’s an interesting point. All small business owners and I bet some big ones also, know that whilst banks often wax lyrical to the contrary, (and the head of the banking commission has the affront to appear on TV feigning indignation that the business world would dare to claim they aren’t lending); there is no money out there for us to borrow.
A bit of bank bashing does the soul good in these times, but the fact is that every business banker will answer “oh yes, please lay out your plans and come and share them with me”. As many of us know though, as that loan application moves higher up the corporate banking line, (however good the proposition) the answer is more than likely to be NO!
So the question as to how one sells a company really did make me think. The reality is of course that if you run a successful company or even one on a bit of a plateau, it could well be really attractive to someone – but the million dollar question is – who? In this market there is no easy answer.
Allowing a company to sell your business on your behalf
If you’ll allow me a quick digression to what is a relevant point, there are companies and agencies out there who right now will, just like the banks, say “oh yes, there is money out there” often adding that with low interest rates these days investors are looking for better returns and that they can find these companies who would be willing to buy for you utilising their extensive database and then marketing and negotiating on your behalf.
One experience of one such “renowned” company who shall remain nameless, whilst the directors were very clever, knowledgeable and articulate, and clinched the deal they handed us over to a patronising, inexperienced team who failed miserably. They remained happy to take £36,000 though (which they assured us at the start was just to cover their costs for account management and research) and we understand that the fee has now increased to £40,000 as well as a percentage fee of any sale proceeds!
Of course the great thing for companies such as these is that if a principle/owner is trying to sell their company and pays such a company which then fails to do so, they are most unlikely to let it be known to their clients and staff or anyone else for that matter that they have tried to sell! Thus, no bad press – don’t you love it? My advice in this market would be to steer clear of such companies and if you chose to work with an agency choose one that only takes a percentage of any sale proceeds. They are therefore paid by results!
Tips for selling your business
- Do your own research, look carefully at competitors and consider to which competitors your customer base and intellectual property would be the greatest benefit
- Research companies in complimentary industries that may wish to expand in your market
- Credit check the companies prior to approaching them to ensure they can afford to buy or at the very least are in a good position to get some sort of funding
- Tentatively approach each personally and individually
- Critically (and I can’t impress upon you enough) if you are to go ahead with discussions ensure you have a really well written non disclosure agreement for them to sign and ensure it’s witnessed properly before you disclose anything
- A lot of the financial and legal due diligence you can do in house and most of it is common sense (forecasts, financial history, contracts and agreements brought together in one place, details of income and customer percentage of total income, customer geographic analysis to name but a few). Ensure that you have done a lot of your due diligence beforehand and are completely upfront with any issues that you are aware of as you do not want to scupper any deal once you are a long way down the track
- Interview a few law firms as you need to pick one that you have a good rapport with. Most firms are now happy to give you a fixed cost for the whole sale process which is great as at least you know where you stand with costs. However, don’t go for the cheapest option. You will need somebody with experience and can best look out for your interests more than saving costs. Take references
- Try to appoint somebody trustworthy and with experience to act on your behalf, under your instructions, and negotiate for you. Discussions are less likely to be emotive. When negotiating the sale of their own company, business owners often fall short and are unaware of entire tactics involved
- Once in negotiations it’s so easy to take your eye off your business. DON’T. Continue running your company as you would have done otherwise
- If unsuccessful develop an exit strategy:
- Ask yourself whether it is possible for you take a step backwards and promote somebody to run the company for you
- Would a management buyout be possible with some sort of deferred consideration?
- Consider venture capital companies to enable your business to grow. Although this would normally mean a lot of work, pressure and giving away your equity you may be able to sell your company further down the line for more
- If you need further organic growth prior to putting your company back up for sale consider re-investment (a lot of private owners become risk averse) Go back to square one and reconsider your marketing strategy and possibly investing more. Look at your staffing and cast a fresh eye over possible new markets and customer base