Has the pandemic killed off prospects of a fair sale, asks David Wilson?
There comes a time in the lifecycle of almost every owner-managed business when thoughts turn to selling up and moving on. The reasons for doing so may be many and varied – but the decision is never easy.
Is now the right time? Can I afford to stop? Who will buy it?
And quite apart from the more rational, financially driven questions, there is a huge emotional issue at stake too. You have worked long and hard to create and grow the business. It belongs to you and is part of you.
The decision is hard enough at the best of times. But over the last year, Coronavirus has added a further layer of complexity. In every sector and in every territory, the pandemic has had a major impact. As a result, many businesses have seen their results decimated. Hardly the best moment to sell your business, right?
Well, perhaps it’s not quite all as gloomy as some say. And with the right support, there are still good deals to be done. Business performance may have been affected by Covid 19 but that doesn’t necessarily spell disaster for the value of your business. Many thousands of SMEs will ride this storm and, when the time comes, command a fair return for their owners.
Principles remain the same
The world may have changed but, when it comes to disposing of a business, most of the basic principles remain the same.
Before you begin the sales process in earnest, you must have a realistic understanding of your business’s value. There are various recognised ways to value a business, though the true picture will also include some less tangible factors relating to its particular character.
What cannot be factored in, sadly, is the inevitable emotional stake of the departing owner. Whether it’s your start-up concern or a family business, you will harbour a deep-rooted personal connection that simply doesn’t correspond to its financial value.
That’s why the input of a financial or business advisor in the early stages is essential to arrive at a realistic figure. While this may be a sobering experience, it is far better to know the true picture now than after months or even years of frustration due to over-pricing. Some owners take this opportunity to take a general ‘health check’ which takes into account not only the financial picture but the wider environment.
Knowing when to sell is one of life’s great questions! Can anyone say for sure? Probably not in truth, though there are some useful indicators.
If you still love waking up each morning and running the business, then perhaps it’s not time. Even if the figures seem to stack up, there’s more to business than the bottom line. So, if that’s what makes you tick, then think long and hard before getting rid.
However, you may have a new challenge to pursue. Or you may see a storm approaching in your chosen sector. Or due to the time of life, your priorities may have changed. These are factors that no one but you (and your nearest and dearest) can really judge.
There’s much you can do in the build-up to selling a business which not only enhances the value but makes the entire process easier for all parties. Ensuring the books are in decent order comes high on that list. Any outstanding contracts, disputes, payments and other ‘niggling’ issues will either have to be addressed or the final valuation will doubtless reflect the hassle factor for an incoming owner.
Due diligence normally means opening up the operation for scrutiny and it’s vital you know what to reveal and when. This is where it really pays to have an experienced legal team, such as ORJ, on your side, helping make the right moves and avoiding common pitfalls.
Then there’s your own role in the operation. Does everything currently revolve around you? If so, you should look at a managed withdrawal from certain functions, to lessen the impact of any change in ownership. Will any key people remain in place to smooth a transition, or are you simply handing over the keys to a new regime? The precise impact of personnel change will vary according to the nature of a business, but it will always be felt, so the earlier you begin succession planning, the better.
Finding the right buyer
You might have a fantastic, well-run business to sell. But how do you know who’s out there looking to buy? And how do you make those right connections at the right time? A good analogy is to think of your own home. If you decided to sell, you wouldn’t just stick a homemade ‘for sale’ sign in the drive and hope for the best.
In the business world, a good transfer agent performs a parallel function to a good estate agent. They can steer you through the whole process; not only helping to maximise the value of your asset but using their industry insight to identify and market your business to serious, credible buyers. And once a buyer is located, they will use their experience to lead negotiations with all sides; minimising costly delays and disputes, and keeping the transaction on course for the right outcome.
At EM&F we have specialised in business transfers for nearly 60 years. We work predominantly with small-to-medium concerns and take great pride in helping them achieve a timely and rewarding exit from their business. Whether it’s a £20K café or a £5million manufacturer, we can bring interested parties together and help navigate a deal that works for all, bringing in all the necessary legal and other specialists as and when needed.
David Wilson is Regional Director at EM&F, Business Transfer Agents, based in Staffordshire.