It is estimated that at around 10-15% of Britain’s three million businesses are looking to sell or change ownership at any given time.
BBC NEWS, 21st May 2008
The last few months have seen many business owners rush to take advantage of the beneficial Capital Tax Gain regime before it changed in April this year.
Alongside the credit squeeze, falling house prices, rising business liquidations and possible recession, you might think now is not a great time to be selling a business.
The truth though is that quality businesses will always sell for good prices, regardless of the state of economy.
However, it is estimated that only one in 10 businesses that go to market end in a sale.
Getting your price wrong, and not talking to enough of the right people, are the two main reasons why most business sales fail.
Out of these, an unrealistic price expectation is the most significant.
Many business owners mistakenly believe that a sale will generate enough money to help them retire to a life of luxury for the rest of their lives.
Whilst multi-million pound deals make good headlines, the reality is that most business sales rarely deliver a life-changing financial future.
A business is only worth what a willing buyer will pay.
For small businesses, a beer mat calculation done over the phone by a business transfer agent, accountant or knowledgeable friend down the pub, is unlikely to hold any weight opposite a banker or investor when it comes to providing the cash for a purchase.
Wanting £3m because you have always wanted to be a millionaire is not going to get you a result if you cannot make a credible explanation of your business’ value.
A good understanding of what makes a business valuable and realising who might want to buy, is essential.
An owner has to substantiate and prove why the business has value; otherwise a buyer will simply walk away.
This is particularly true, now more than ever, with a seriously diminished appetite for lending among the banks.
A seller must place himself in the buyer’s shoes.
They will ask themselves what they are buying, and why.
What makes the business truly unique? Will the return justify the expense? Will their money be better spent elsewhere? What are the comparative investments?
Turning over the stones
The second reason for sales failure is not talking to enough buyers in order to find the right one.
This is where using the right business broker can really make a difference.
If an owner relies on their accountant to write to the nearest competitors or place an advert in the Sunday papers, they are unlikely to get the best deal, or any deal.
A business sale will involve accounting and legal steps.
But do not lose sight that, ultimately, selling a business is a sales exercise and this is the skill which will really matter and make the difference.
The more buyers you can get in front of, the better chance you have of getting the best deal.
An experienced broker should research a business and industry inside out and produce credible and professional documentation.
This will cover a full valuation, as well as a full marketing plan, designed to identify and reach every possible potential purchaser for the business.
This plan should include exposure to a database of known prospects and broker contacts, and direct liaison with businesses identified through research, as well as advertising on the web and in other relevant media.
Leave one of these stones unturned and vital opportunities might be missed.
Don’t leave it too late
The first step in selling a business should be to seek out specialist help early on.
A business should be properly appraised and valued.
This will set the right level of expectation as well as highlight any issues which should be addressed prior to going to market.
For example, would a change in Government legislation suddenly alter the business landscape? Is now the right time to be selling? What makes a business valuable? Can a business be improved? Why would a buyer would be interested? What other businesses in the sector have sold and for how much?
This process alone can dramatically affect not only the amount of money changing hands but also if a deal can be done at all, which will save you time, money and unnecessary worry.
An appraisal or valuation should be done by a credible source.
This should be an experienced business broker or an accountant who specialises in business sales, ideally a year or two ahead of when looking to exit.
As with most things in life, there are good and bad.
Do research, look for recommendations and do not be afraid to check that a broker has the necessary experience and proven track record.
A specialist in selling fish and chip shops or pubs is unlikely to help sell a recruitment agency or precision engineers.
A seller should not let poor planning, unrealistic expectations and weak marketing prevent the achievement of the ultimate holy grail of the entrepreneur – a successful exit.