Introduction
Mark Blayney worked for one of the UK's leading accountancy firms as partner in charge of strategic consultancy and turnaround business. He now runs a strategy consultancy and financing brokerage which specialises in turnarounds and business revenues.
WHY DO YOU NEED THIS BOOK?
Some people only ever sell their business once, typically when they are looking to retire. Others will find themselves selling their businesses a number of times during their careers as they move from one project to the next.
But both types of people have one thing in common, they both need to get the best deal possible out of the sale:
- if retiring, to secure the future
- if looking to move on, to fund the next venture.
This book is written to help you to ensure you get the best possible deal when you come to sell, for whatever reason.
WHAT DO YOU NEED TO DO TO GET THE BEST DEAL?
To get the best result from any sale requires preparation, having a structured approach to marketing what you have for sale, and negotiating the actual deal. Take for example selling a car. To get the best price you would generally need to:
- Decide why you want to sell – you need to have a convincing reason to tell prospective purchasers, such as trading up, otherwise they may think that it’s a problem with the car that has led you to sell.
- Pick the best time to sell – so that you are selling at a time that suits you (rather than being forced into a sale when you are desperate for the money), and you are selling at the best time of year (eg you are likely to get more for your convertible in May than in November).
- Do some market research – to check how much your car is likely to be worth, what you want to get for it, how much you will ask (to give yourself some room for negotiation) and what seems to be the best way to advertise it.
- Get the car and the supporting paperwork prepared – so that the car is attractive, you have taken out anything you want to keep (or could sell for more separately), you have the HP paid off, you have the service record, MOTs, receipts and logbook to hand.
- Start your marketing – place your adverts and be available to take any calls.
- Deal with enquiries – meet prospective buyers, give out the right image about yourself as much as about the car and deal with their questions.
- Let the buyer do their checks – look under the bonnet and take a test drive.
- Negotiate the price – (how much) and the terms (cash or banker’s draft, not personal cheque).
- Complete the sale – take cash and write out a pair of signed receipts (one for you to keep) describing the sale on an as seen basis to avoid any future claims; and send your part of the logbook in to the DVLC so that you don’t start to receive demands for payment of the buyer’s parking tickets or speeding fines!
The same general approach will apply to selling your business. Just bear in mind that when your buyer decides that they want an independent inspection of what they are buying, it’s likely to be an ACA or ACCA (a Chartered or Certified Accountant) that turns up to look at the books (a ‘due diligence’ report), not the AA to look at the engine.
SO WHAT IS SO DIFFICULT ABOUT SELLING A BUSINESS?
It’s important to realise however that there are fundamental ways in which selling your business will differ from selling your car.
When you sell your car, you don’t expect |
But when you sell your business you may find |
To worry about giving out information to prospective buyers about the car |
You need to be careful about how much information you give out during the process, as for example, you don’t want your main competitors picking up your key customer list for free |
To worry about advertising that the car is for sale |
You want to keep the fact that the business is for sale secret from suppliers, staff or customers until the deal is done |
To be asked to lend the purchaser the money to buy the car |
You have to allow the purchaser some credit to enable them to pay you in part over time out of the profits of what was your business (‘vendor financing’) |
The final price to be uncertain until you have worked out exactly how much petrol is in the tank |
The final price will have to include stock at valuation (SAV) at the date of sale |
To be expected to have to give written confirmation that the car has not broken down in the last two years |
You are asked to confirm some facts about your business in writing (‘give warranties’) |
To be required to give your purchaser driving lessons |
You have to agree to stay on for two weeks or two years to help train the purchaser in running your business or to smooth the introduction of the buyer to your customers |
To promise the new owner that you won’t buy a new car |
You are asked to sign an undertaking not to set up business again in any way that will compete with the business you have just sold |
The final price to be dependent on how well the car keeps running over the next two years |
The price agreed includes clauses that adjust the total paid up (‘escalators’) or down (‘clawbacks’) based on future performance |
To consider the tax implications of a sale |
Tax planning may be vital to ensure you obtain the best net result from your sale |
To need anyone else’s permission to sell (assuming that you have paid off any hire purchase) |
You may need agreement for the sale and transfer of assets or contracts from your landlord, franchiser, or even suppliers or customers with long-term contracts that include clauses covering change of business ownership |
In addition, just as there are specific price guides, key criteria for valuing (make, model, age, condition and mileage), and specialist magazines for selling cars, there may be similar ‘standard approaches’ that are specific to your business, eg:
- Traditional routes to sale – such as specialist agents who deal with licensed premises, agricultural land agents or brokers who specialise in professional practices.
- Standard information required on which purchasers make decisions or on which businesses in your industry are valued – such as barrelage for pubs.
- Traditional sale terms – such as SAV (‘stock at value’) for pubs.
HOW WILLTHESE ISSUES AFFECT YOUR BUSINESS?
The degree of complexity involved in the sale process and the issues arising from it will vary depending on the size and complexity of the business and the nature of the sale.
This book is therefore designed to address the whole range of situations just described, to help every seller achieve the best outcome and while not all the detail of each chapter will be relevant to every business sale, the general principles outlined will apply to all sales to some degree.
Most of the terms used in the book are defined in the text, and you will also find a glossary of relevant terms at the back of the book.
Type of business |
Approach to selling |
Will generally be selling to |
And the sale may involve |
A small husband and wife or lifestyle business such as a pub, small shop or guest house. |
Might typically advertise for themselves in the small ads section of the relevant business press, or engage specialist estate agents. |
Other individuals. |
A quick hand-over. May require some form of vendor financing by the sellers, and a short period of ‘on the job’ training in running the business. |
A small service business or professional practice such as a vets, dentists, accountants, estate agents or solicitors. |
Might generally use a specialist firm of business brokers. |
Other firms looking to expand (eg a ‘consolidator’). |
May require a period of consultancy of up to say two years to allow for an orderly hand-over of the trade and client base to the new owners. |
An established industrial business with a turnover of £2–5 million and ten to 20 staff. |
Is likely to need to engage accountants to assist in preparing the business for sale, marketing the business and dealing with the purchaser’s advisors. |
Another business (such as a competitor in the industry) by way of a ‘trade sale’. A team from within the business’s existing management (a management buy-out or ‘MBO’) backed by venture capital(VC) firm. |
The purchaser will employ accountants to undertake a detailed review of the business’s financial position and trading performance and prospects (a ‘due diligence report’). Payment in part by way of shares or options in an acquiring company (‘paper’) rather than cash. |
A rapidly expanding high tech business with high growth plans. |
Will need to engage a team of specialist corporate finance advisors to market a stake in the business to potential funders to raise money for the business’s expansion. |
A venture capital (VC) house looking for investment in the sector. |
Preparation of a detailed sales document (‘prospectus’) requiring a range of projections and professionally prepared information that needs to comply with complex regulation. |
This book is therefore designed to address the whole range of situations just described to help every seller achieve the best outcome and while not all the detail of each chapter will be relevant to every business sale, the general principles outlined will apply to all sales to some degree.
Most of the terms used in the book are defined in the text, and you will also find a glossary of relevant terms at the back of the book.
DEDICATION
To my parents for all their support and Pat, as ever.
ACKNOWLEDGEMENT
I would like to thank Ian MacDonald of Ward Hadaway, George Moore of Regenesis Partners Ltd, and Adam Wardle of Horwath Corporate Finance for their assistance in reviewing the contents of this book, and Horwath Corporate Finance and Ward Hadaway for the use of sample documents.
