Finding a Solicitor

Using a solicitor from the outset can save your business a lot of time and money. Its easier to solve legal issues before they become too big and end up costing a fortune to solve. Using a solicitor is a vital step in buying a business or selling a business.

Their services may seem a little expensive but the advice and guidance regarding legal issues in invaluable to ensuring your business runs with as few hitches as possible.

Many business owners find themselves in terrible positions because they opted not to use a solicitor. Its even more important to use the services of a solicitor in the early stages because this is a period where lots of legal implications can arise and ironing out potential problems is easier.

Choosing the right solicitor is also important and is likely to save you future many sleepless nights.

Solicitor Services

There are a number of key areas where professional legal advice can be useful:

  • They are able to assist you with the formation or change of structure of your business and will generally offer advice based on your circumstances. Some of them offer a service where they register a business on your behalf and ensure it complies with all legal requirements.
  • Solicitors can help you understand the terms for leases and licenses.
  • They are also very up to date with industry specific regulations and laws, and can advise you on how to comply with the regulations applicable to your business.
  • Intellectual property – This can be protected with patents and trademarks. The solicitor should be familiar with the procedures and costs involved in obtaining this level of protection.
  • Contract Terms and Service Levels – These can be handled by your solicitor, who should keep you informed of your legal responsibilities to customers and suppliers.
  • Raising finance – A solicitor can help you understand your legal responsibilities when taking on additional funding and highlight the risks if you do not keep up repayments. They can also give guidance for agreeing terms with a lender.
  • Debt Control – They can manage your exposure to bad debt and can advise you on how to go about collecting bad debts.
  • Franchising – You should get your solicitor to check the terms of your franchise agreement and check the small print for any irregularities.
  • Employment Law – Solicitors can keep you informed of current employment law and your responsibilities are to your employees. He will also be able to advise you on what your employees responsibilities to you are.

Finding the right solicitor.

Finding the right solicitor for your business can be a daunting task. Luckily there are some good sources to point you in the right direction.

Solicitors are part of a professional body called The Law Society. The Law Society offers the Lawyers for Your Business scheme which can put you in touch with local solicitors, or provide you with contact details of solicitors who specialise in a specific type of legal activity.

Government organisations like Business Link normally have a list of approved solicitors on file and can supply you with these details if you visit your local branch. Some areas have development agencies that also have approved solicitors on file and they should be more than happy to give a few recommendations.

Your local chambers of commerce should also be able to provide with a list of local solicitors.   Locate your local chamber of commerce

Sometimes you can ask businesses of a similar size to recommend a solicitor. Business contacts should also be able to recommend someone.

Some solicitors are very experiences in dealing with similar businesses to your own. Try to locate these professionals through any trade or professional association you belong to.

Choosing a Solicitor

Most law firms offer a wide range of services and advice which, in most cases, is all youll need. If you need specialist advice not offered by your solicitor, then the Law Society should be able to point you in the right direction.

Check to see if the solicitor has a certificate to practice law. This certificate is issued by the Law Society and ensures the solicitor is qualified and capable of dealing with your legal issues.

Find out from a few solicitors services they offer and what they charge, and then shortlist the ones you prefer before arranging to meet with them.

Arrange an initial meeting with the solicitor whose services you are considering using. Try to make sure you meet with the individual who will be assigned to you. This initial meeting should be free.

Once you explain your business to the solicitor, try to find out if they have dealt with you type of business before. You should ask whether they are happy to take you on as a client based on the services you are looking for. Solicitors can also provide feedback as to whether your intentions for your business are realistic and should be able to give you an idea of how they can help you achieve those intentions.

Make sure the solicitor is willing to provide advice in a clear and easy to understand manner without using confusing legal jargon.

Find out how often they require you to contact them and whether they are able to provide you with a Client-Care letter which sets out their terms and complaints procedure. Its also a good idea to find out what other services they can offer as you grow.

Final Decision

You need to choose which of the solicitors you think is right for your business and contact them to let them know you have chosen to use them. Building a relationship with your new solicitor is vital for insuring they are familiar with your business. This should ensure they handle your legal issues correctly.

Finding an Accountant

The financial records form a vital part of the day to day running of a business. They need to take into account and record all incoming and outgoing payments. Not all companies need to employ an accountant on an ongoing basis but most choose to use one to compile and prepare the needed financial statements for presentation the relevant authorities.

Some businesses employ an in-house accountant and others prefer to pay an external accountant to do the work required. It doesnt really matter which option you choose, but it is recommended that you use an accountant who has “chartered” or “certified” within his/her business name which means he/she is affiliated with a professional body like the Association of Chartered Certified Accountants (ACCA).

Accountant Services

Accountants offer a range of services to help business owners to get on with what they do best, running a business. Accountants are an invaluable resource and they will probably have to be one of your most trusted advisors.

Accounts are a great source of advice for both, start ups and ongoing concerns. Some Accountants will charge you for this service. So be sure to ask beforehand.

Accountants offer bookkeeping services too and sometimes this is great because you have one party dealing with all your financial documents. It is very common for businesses to do their own bookkeeping, but this generally requires some experience in bookkeeping.

VAT registration and returns can be handled by an Accountant who is able to offer piece of mind that records will be accurately compiled and filed in a timely manner with the relevant tax offices.

Accountants also compile tax returns and annual accounts. A good chartered accountant can save you money by using their working knowledge of the rules, regulations and exceptions to reduce the amount you pay in taxes. Annual accounts can also be compiled by an accountant, who will submit them to the relevant parties (e.g. Companies House) by their due date.

Finding an Accountant

It is a good idea to ask friends, family or business contacts to recommend an accountant. This should help you in the right direction. You could also look at some of the directories held by professional bodies:

  • The Association of Accounting Technicians(AAT) 
  • The Institute of Chartered Accountants in England and Wales(ICAEW) 
  • The Association of Chartered Certified Accountants(ACCA) 
  • The Institute of Chartered Accountants of Scotland(ICAS) 
  • The Institute of Chartered Accountants in Ireland(ICAI) 
  • The Chartered Institute of Management Accountants(CIMA) 

Choosing an Accountant

Before choosing an accountant to handle your financial obligations, consider the following:

  • Try to find out if the accountant has experience with companies in your sector. This will benefit you because the account will have a better understanding of what your business is about.
  • Check that the accountant has the necessary qualifications and have a look to see whether the company has the any of the following letters in its name: ACA, FCA, ACCA, FCCA, ACMA or FCMA. These letters imply they belong to one of the industry specific associations, who require accountants to have a few years experience before admitting them as members. This means you can make sure the accountant is qualified and able to deal with accounting issues before taking them on.
  • If you are a small business try to find a smaller accountancy firm, which is likely to understand your business better and provide a more personal service. Larger companies generally require the increased resources of larger accountancy firms.
  • If you can try to meet face to face with a few accountants before choosing one. This gives you a chance to judge whether they seem trustworthy. You could also ask for some references from their current clients and ask them what they think of the accountant and the service he/she provides.

Briefing an Accountant

When you meet an accountant for the first time you need to explain to the accountant what your business does, how it operates and what financial milestones you are aiming to achieve.

Start ups should describe what type of business they are planning to set up, and what their future projected financial position is likely to be. If you have not done these projections then ask the accountant what he can do to help you draft a business plan and reach your objectives.

You should find out if the Accountant has dealt with similar businesses in the past and what services he can offer. If you already have a system in place, ask the accountant if he can do to improve it.

You will also need to find out what he/she charges and what services those charges include. If the fee is charged on an hourly rate then try to get an estimate of what their service is likely to cost your business over the course of the year. Some accountants charge a fixed annual fee which normally includes certain services. Find out what youre getting for your money.

Final Decision

Once youve decided which account to use, they will issue you with a letter of engagement. This is a contract between you and the account, which sets out the

  • Accountants responsibilities
  • Your responsibilities
  • The fees and how they will be charged

Try to keep a steady stream of contact with your accountant and keep him/her up to speed on any new developments.

How to Value a Business for Sale

How much is this business worth? How can I improve its value? These two questions are never far from the minds of business owners or potential business buyers, but surprisingly not too many owners have a clear answer for either.

It’s scary to think that as many as 66% of small to medium sized business owners in the UK have no clear idea of what their business is worth. And a similar number have no clear exit strategy highlighting what they hope to achieve from the sale of their business in the future. It’s by knowing what a business is worth that you can formulate an idea of what you want it to be worth when you decide to sell it. I can only imagine how many people decide to sell their business, retire and live the good life, only to find out that they are not as well off as they thought they were.

If you’re a buyer, then you’re probably more concerned with making sure you don’t pay too much for the business. The value of a business depends on how much profit the potential purchaser can make within a certain period of time and what level of risk is involved, should he/she purchase the business. 

What factors influence the value of a business?

Circumstances of sale

Sometimes owners are forced to sell their businesses because of ill health or for some other unforeseeable reason. This could reduce the value of a business severely because the owner is willing to accept a lower price to ensure a speedy sale. On-going businesses however can afford to wait for a better offer.

An exit strategy can help you plan for the unexpected and generally results in a higher price being achieved.

How tangible are its assets? 

If a business has a large amount of assets like property or machinery, but a low amount profit, it can still be worth a lot because of the assets underpinning its value.

Other companies have relatively few tangibles assets and are valued based on their profit potential rather than their asset value.

Age

Younger companies tend to represent more risk for buyers and usually sell for less than established businesses. An older business is more settled and likely to be able to turn a consistent profit over a long period of time whereas younger companies tend to be more unpredictable.

Sometimes young companies, despite their instability, can still fetch a good price based on their future earnings potential. 

Financial Performance

One of the more obvious factors that influence the valuation of a business, is it’s historic financial performance. Poor results leading up to the sale of your business can have a large impact on what buyers are prepared to pay. In many instances the previous years accounts play the biggest part in a business valuation and any exit strategy you formulate must have this as a core consideration.

A strong financial performance will almost always result in a higher value but bare in mind that the potential buyer will want to be satisfied that the same performance can be repeated if the business is bought.

Valuation Techniques

You should always remember that a business is only worth what someone is prepared to pay for it.

Net Profit Multiples (P/E Ratio) 

Multiples of a business’s net profit are often used to calculate its value. This method is popular for valuing businesses with a low level of physical assets because it relies more on the businesses earning potential. One way to determine what value your profit margin should be multiplied by is too look at what sort of return an investor can get for his money in the market place. Let’s say you do a quick search on the internet and discover that the maximum amount of guaranteed return available to an investor is 10-15% per year. The selling price must reflect a better return on investment for the buyer than what is available to him in the marketplace. So let’s say you decide that 20% return per year is fair. 20% is one fifth of 100%, so therefore you’d multiply your profit after tax by 5 to reach a fair price. But sometimes your industry is growing very rapidly and the fair rate of return can be reduced to account for increased profit in the future.

[Profit after tax] X (100 / Fair rate of return) = Estimated Value

This method requires net profit and an idea of what represent a fair rate of return within your industry. Typical multiples range from 1 to 10 dependent on expected growth, with 5 being about average for small businesses. It is not unusual for companies within the IT industry to use multiples of 25 because of the high growth potential.

Asset Based Valuation

If the business is asset rich, then an asset based valuation is normally preferred. This method of valuing a business relies on knowing the value of a business’s assets and what its outstanding liabilities are.

Assets – Liabilities = Value (Equity)

Remember that a company’s assets according to its books may not reflect what the assets are really worth, so you may need to make sure of their exact value. The form of valuation is commonly applied to manufacturing or property based companies.

Entry Cost Valuation

This form of business valuation looks at what it would cost to create a similar business in the current market. Valuing a business in this manner is quite complex because there are so many factors to take into account. These could include the cost of employing staff, buying equipment, researching products and securing customers. It’s probably a good idea to seek out a valuation agent with specialist knowledge of your industry if you want to use this method.

Industry Accepted Methods

Some industries have pre determined methods of valuing a business. For instance estate agents can be assign a value based on the number of branches they hold. You should consult a valuation agent or business broker who is experienced in selling similar businesses in your industry if you are not sure.

Which ever method you decide to use remember to be realistic, otherwise you could frighten off potential buyers. There may be no demand for your type of business in the market, and selling off the assets could be worth more than discounting it to ensure a quick sale.

A Guide to Buying a Business

Introduction to Buying a Business.

Searching for a business to buy? Thousands of people search business for sale websites every day for an existing business, as opposed to starting one from scratch. This is because buying a business is less risky than starting your own one, but finding the right business amongst thousands of business for sale listings can be tricky. Despite understanding the business sale process, you’ll also need to consider the advantages and disadvantages of buying a business, to determine if it’s the right option for you.

This guide is meant to provide readers, who plan on buying a business, with an overview of what is involved in the buying process. It’s by no means an exhaustive resource but it serves as quick primer to give you an idea of the major elements of the process. So if you’re considering buying a business and you want to learn more, then this guide is for you.

Buying the right business.

The easiest way to decide on the right type of business to buy is to think of what your strengths are, or what your passion is. If you’ve always dreamt about buying a hotel or owning a pub then that’s always a good place to start. 
One suggestion is imagine the sort of business you would have the most fun running. If you’re not having fun then it’s unlikely that you’ll work very hard to make it an outstanding success. 

Another suggestion is to buy a business that plays to your strengths and experience. So for example, if you’re an experienced salesman and you want to buy a business, consider buying a business that requires a large amount of customer facing or telephone selling to play to your strengths. 

Franchises are also becoming more and more popular as an alternative to buying a business. Please see our guide on buying a franchise.

Identify businesses and create a shortlist.

There are many good sources of business for sale listings around these days. The internet has made finding a business easier and websites like ours have allowed sellers to advertise for less, resulting in a comprehensive list of businesses for sale across the country. Websites like Business4Sale.co.uk provide you, as the potential business buyer, with thousands of business for sale listings from almost every business sector and location in the UK and best of all it won’t cost you a penny! 

Another way to find a business to buy is by visiting your local business transfer agents. They would be happy to sit down and establish a set of criteria you need fulfilled before buying a business. They also have a number of businesses on their books and are actively looking for buyers for these businesses. You might find they already have your perfect business for you, but in most cases they are able keep your details and search criteria to notify you in the future of similar businesses for sale. Their services are normally free for buyers but some do levy a small charge for the service. 

When buying a business through a business transfer agent, make sure they are members of The National Association of Estate Agents, or NAEA as it is referred to. This should indicate they conform to a code of conduct and reduces the likelihood of being messed about. 

Traditional sources such as newspapers and trade publications often include a classified section listing businesses for sale. If you’re looking to buy a business in a specific sector then try looking in magazines or publications specific to that sector. The problem with business for sale listings in print media is that they are normally quite costly to place. As a result, there a few listings and the amount of information displayed is minimal. 

It is also very common for business owners to sell their businesses to friends or family, so keep your eyes peeled and your ear to the ground for anything that might suite you. 

Do your research and get more information.

While deciding on businesses to add to your shortlist, do a bit of research and try to answer the following questions:
•    Is this business in a growing, mature or declining industry?
•    How many hours will I need to commit? 
•    Is there a local demand for the product or service?
•    How competitive is the industry?

Once you have shortlisted a few listings that you think might be worth taking a look at, make some enquiries via telephone or through a website like Business4Sale.co.uk. 

Remember, sending an enquiry is free of charge and it gives you a chance to shorten your shortlist even further. You should have a list of relevant questions that you plan to ask the seller. This ensures the seller knows you are serious about buying a business and you’ll find he/she will be more likely to provide you with useful information. 

Some good questions to ask the seller are:
•    How much profit does the business make and does that figure include the owners salary?
•    What is the exact location? 
•    Is the businesses yearly revenue growing or declining? 
•    Is the business dependant on its current owner or can it function without him? 
•    Does the business have any unique products or services that competitors don’t?

Arrange a viewing.

Once you’ve shortened your list the next step would be to attend a viewing of the business. Look at the condition of the assets and make a note of the how enthusiastic the staff are. Staff enthusiasm can tell you a lot about how the business is managed and could provide clues to potential future problems or opportunities. If you are in doubt about something, ask the seller. 

It’s important to remember that sellers often prefer to keep the sale of their business private to prevent poor trading or unrest amongst staff, which can occur when a decision to sell is made. So be discreet but thorough and make a note of key findings. 

Evaluate the business.

Once you’ve found the right business, you’ll need to try to evaluate its worth. There are many factors that will need to be taken into account and below is a list of some examples: 
•    What are similar businesses selling for? 
•    Is it ideally located for good trade? 
•    How dependant is it on the current owner being present? 
•    What position does it hold in the marketplace and are customers familiar with the brand? 
•    What is the value of the businesses fixed assets?

There are three main routes you can take when valuing a business. They are, making use of an accountant, specialist business valuation agent or read as much as you can about the topic and try to come up with an informed guess. Naturally the third is less reliable, but it’s worth noting that a business is only worth what somebody is prepared to pay for it. 

There is no substitute for experience, so try to use professionals like accountants and agents if you can. Don’t be afraid to ask how they came to a particular value and try to verify as much of what they say as possible. 

See our business valuation guide for further reading on how to value a business.

Arranging finance.

Once a value is established, you should look at whether or not you need to raise additional finance. Lenders usually require the current trading statements of the company for a period of 3-6months. If you don’t have these then it’s quite likely you may need to compile a business plan to explain your attempts to forecast the sales of the company you wish to purchase.

High street banks are the most common source of small to medium sized business funding and they will generally provide loans of up to 60% of the businesses value. This leaves you to come up with the remaining 40%.

Many business owners rely on family and friends to help them finance a new business purchase but beware that this does also open the door to serious dispute should the business fail. 

Submitting a formal offer.

Once your finance is in place then it’s time to put in an offer based on what you think the business is worth. Remember to submit all offers in writing regardless of whether you have placed an offer over the phone and ensure that the phrase “subject to contract” is present in all correspondence with the seller. It is advisable to seek professional advice when tabling an offer. 

There are strategies for putting in offers. These include discounting the price you feel the business is worth by between 10- 25% leaving room for negotiations. We advise you ask the professional who conducted the valuation to offer some suggestions or advice. 

Try to negotiate a period in which you can become familiar with the business before taking over completely. This can help to make sure there are no major skeletons in the closet. 

The likelihood that you will have to negotiate on your price is very high, so try to stay below what you feel the business is worth. Remember that this is a business decision and that emotions can negatively affect your ability to make good business decisions.

One other useful tip is to be creative with your offer and negotiations. For example if you can’t get the seller down in price, try get them to allow you to pay the difference at a later date or link it to the businesses performance, giving you a better chance of establishing a positive cash flow before having to part with money.

Undertake Due Diligence

Due diligence is a period negotiated between you and the seller in which you can verify the information given to you about your prospective new business. 

It usually occurs after you have negotiated a price, but can sometimes occur prior to price negotiations, and gives you a chance to check the company’s financial position in relation to the information used to compile your offer. It’s also a period in which you can identify business weaknesses and solutions to strengthen the business you intend to buy. 

Key issues that need to be addressed include: 
•    Financial position
•    Staff terms and conditions
•    Environmental Issues
•    Major Contracts and Orders than need to be fulfilled
•    Management style and whether changes need to be made to improve the operations of the business. 
•    Unsettled litigation

So try to gather as much information as possible from internal sources (company documents) and external sources (Tax office, bank, and landlord) to compile your analysis. 

Prospective buyers for a small businesses usually need between 2 weeks and 1 month to complete a proper analysis of the business, but larger businesses have been known to take two or three months to evaluate. 

If you discover that the seller has not been honest when disclosing information you can either decide to call the whole thing off or start renegotiating the price down accordingly.

During this period the Seller may still choose to continue advertising the business for sale. 

We suggest you get help from a solicitor or accountant, who will be able to assist in most matters relating to this topic.

Completing your purchase.

Once you’re happy with the information you’ve collected and the financial statements of the business you plan to buy have been verified, any leases, contracts, licenses need to be transferred. You will also need to transfer the finance to the seller and complete any remaining paperwork.

You’ll need to sign a business sale contract, which should include a non-compete clause preventing the seller from starting up another business in competition to yours. You are then the proud owner of a new business.

Sell a business in the UK

business for sale

In this article we take an in-depth look at what it takes to sell a business, what makes a great business to sell, and how you connect with the right buyer for your cherished business. A business can mean so much more than just money to the owner. Genuine business owners want their business to fall into genuine people’s hands.

Many of us have spent a lifetime building our business and really want to make a sale that sees the business go forward as well as existing clients properly looked after. In this article I’ll go through all of the pitfalls that you could possibly imagine and ways in which you can maximise the value of your business prior to sale.

I apologise in advance for it being such a long read but being something as serious as your life’s work you can’t really put a price on this invaluable 15 or 20 minute read. I absolutely promise the information in this article will be of value and well worth the time invested in reading it if you’re looking to sell a business

Table of contents:

Selling a business: What gets buyers excited?
When is the right time to sell a business?
Why solicitors are a ‘must have’ when buying a business.
Mistakes to avoid when selling your business
Selling a business: What turns buyers off?
Legal aspects relating to the business sale process.

Selling a business: What gets buyers excited?

Before we get to grips with what get’s buyers excited, it’s worth pointing out that not all buyers are created equally. Business buyers in my experience come in two flavours, milkers and builders. They have different objectives when it comes to buying a business and knowing which one is more likely to buy your business is critical to planning your sales pitch. So let me first explain the difference between milkers and builders.
Milkers want a cash cow, something that will deliver a certain level of income or degree of return on investment.

They normally have an exact figure in mind and are working towards buying something that will generate that magic number. On the risk scale they tend to gravitate towards the less risky end.
Builders on the other hand are looking for something they can build up, something that’s not quite the finished article and has room for them to stamp their mark on. They are normally more active business owners and tend to position themselves a bit further along the risk scale towards the riskier end.

Ok so now you have an idea of the types of buyers, what gets them excited? Well there are many factors that appeal to both groups but these factors have varying degrees of importance to each buyer type as follows:

Extensive Financial Statements – All potential buyers will want to see the financial statements for as many years as possible to assess how reliable the income is, what the cash flow position is, what the businesses expenses are, potential problems and possible opportunities that may exist. It’s milkers who value this information the most though. They normally prioritise these numbers over everything else. Builders will also be looking at the numbers but that’s not the whole picture for them. Builders are looking for opportunities.
Good return on investment – Although quite an obvious one, milkers will be more concerned with the return on investment than builders. They are looking for a positive cash flow that provides stability for them to realise their return. Builders, on the other hand, will take this into account but they are also focusing on what the business might be worth in future.
Management team – An experienced, competent management team is essential for buyers who prefer a role that involves overseeing as opposed to being hands on with every aspect of the business. Buyers that are builders prefer a more informal structure that allows them to exercise control over most aspects, allowing them to get their hands dirty. On a whole businesses that are dependent on their owners do tend to be less attractive because of the reliance on the owners relationship with customers and vendors. People buy from people as the saying goes; you want to make sure that the correct people remain behind when you sell the business.
Opportunity to grow quickly. – Now we’re getting into the domain of the builder buyer who’s looking for an opportunity to make the business bigger and better, and thereby realise a handsome return. Remember to keep it real though. Buyers are not blind optimists, they are looking for real opportunities that they can inject energy into. Over inflated statements will only leave you looking like a bad car salesmen and this will probably lead to the buyer losing interest.

Exciting brand and product lines. – Businesses that have an exciting brand or have a collection of products or services in a fast growing sector are normally favoured by builders. They want to tap into this potential and are prepared to take a few risks to position themselves on an aggressive growth trajectory.
So identify what type of buyer your business is likely to attract. If you’ve been around for ages and you think stability is your strength then trumpet that, make sure the buyer knows what he’s getting. If on the other hand your business is still young or is still growing, then make sure you emphasise the real areas of opportunity that are available to the buyer. Painting a picture of the future in the buyers mind is likely to get them more excited and generate more interest.

When is the right time to sell a business?

Running a business can be a thankless undertaking, often requiring long hours and excessive stress levels as the daily norm. I know because I have firsthand experience at it.

But why do it then? Some do it because they love what they do, others have been doing for so long they don’t know what else they would do, and some just love the fact that they don’t have to answer to a boss.
I can identify with some of these points, but one of the reasons I do what I do is that one day I will be able to sell my hard earned business for a tidy amount and ride off into the sunset like some character out of a Clint Eastwood movie.

That’s where timing comes in. Timing the sale of my business correctly means more money in my pocket. I’ve spent years building my business as I’m sure you have too and I want what I’m owed (hmm that sounds like a line out a Clint Eastwood movie already). The more I get from the sale, the more options I have and surely that can only be a good thing.

So what’s the right time to sell then?

The most common response to this question is to sell when the market is growing and there is some room for the buyer to make a profit too.

Now I don’t know about you but I’ve got a business to run here and don’t have time to do an in depth analysis of my market and then dissect the information to arrive at the ideal selling date.
I also have yet to find a service that works similar to a hotel wake-up call, something like “Good morning Mr. Withers, this is your wake up call. We anticipate another 5 years of exceptional growth. Good bye.” Hmm I wonder if there is a business idea there.

So how do I know how healthy my sector is?

Other than rising sales here are three great ways to know when your industry is in good health
Firstly, I recommend keeping your ear highly tuned to your industry, read trade publications and find out, in passing conversation, from your suppliers and customers what they think will happen next. Everything you pick up, when taken with a pinch of salt, will help you build a better picture of your industry. This reservoir of knowledge will give you an unrivalled gut feel about your sector. So invest an hour a week to research your industry further.

Secondly, rising margins and new products or services to your sector are sure signs that things are on the up and good profits are to be anticipated. Buyers are looking for good prospects to invest in.
And thirdly, finding finance is easier and investors are actively looking to invest in your sector.

Conclusion to the right time to sell a business

Picking the right time to sell comes from a deep understanding of your industry and trading environment, so put some information gathering procedures in place and start listening. Knowledge is power after all.
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Why solicitors are a ‘must have’ when buying a business.

It seems quite obvious really. Handing over large sums of money for a business you’re not 100% familiar with. Surely you need some legal representation to look out for your interests? We certainly think so and that’s why we put together this refresher post to show why solicitors are a ‘must have’ for buyers and indeed all parties involved in the sale and purchase of a business.

If you’re buying a business and you’re thinking of going it alone, take a look at the following points to see just how valuable a solicitor can be during the business purchase process:

Share/Asset Sale

There are two main methods for structuring the sale of a business. The Asset Sale, which involves you selling the assets of your business to another business or person. And the Share Sale which involves you selling shares in your business to the new owner.

Each method has its pros and cons and we recommend that you seek legal advice, along with tax planning advice, to see how the proposed deal structure might affect you and your circumstances.

Review Lease

If you’re buying a business that leases its premises, be sure to have the lease checked out to familiarise yourself with both the terms of the agreement, and what your responsibilities to the landlord are.
A solicitor will be able to guide you through the terms of the lease, pointing out areas of concern and offering guidance to uphold your best interests. If the Landlord has agreed to assign the lease over to you, your solicitor can help you prepare the required documentation to ensure a smooth transition. If a new lease is to be signed, solicitors can assist you during this process too.

Heads of terms

When the basic terms of the sale have been agreed in principle, a Heads of terms will need to be drafted to outline the agreed terms of the deal. This is often referred to as a ‘roadmap’ for the sale and is normally not legally binding but helps to clarify the terms of the proposed deal.

Your solicitor should be called upon to review the Heads of terms to ensure your requirements have indeed been met and that the terms contained are in your best interests.

Negotiating a period of exclusivity

It’s not uncommon for buyers to request a period of exclusivity in which to complete the deal with the seller. Your solicitor can negotiate this period with the seller or their agents to ensure you can complete the deal without disruption or distraction.

Due diligence.

Once a deal has been agreed in principle, you will then be allowed to access the business’s sensitive information to assess whether it has been accurately reported to you in prior stages of negotiation.
A solicitor will be able to review contracts of all types including sales contracts, staff contracts and contracts with suppliers to ensure they are favourable and do not leave you exposed to future potential losses.

Purchase Agreement

Once due diligence has been undertaken, you are normally required to submit the first draft of a purchase agreement for the seller’s consideration. The seller will most certainly be using an experienced solicitor to handle the sale process on their behalf and that solicitor will seek to extract the most gain for their client.
If you choose not to employ a solicitor, you could be at a disadvantage when it comes to protecting your interests. You may not be familiar with the legal implications of the agreement and this could leave you exposed to future loses that would diminish the value of your investment.

Warranties and Indemnities

You, as the buyer, can request that certain promises be made in the form of warranties and indemnities. A good solicitor will be able to help draft meaningful warranties that the seller must sign to help protect your investment from misrepresentation.

If, at a later date, these promises are not realised, you could then take legal action to recover a chunk of the sale price.

After Sale Restrictions

Most buyers will look to have legal restrictions placed on the seller to prevent them from competing with the newly purchased business after the sale has been completed. You’ll also want to restrict the seller from poaching the clients and staff that have helped to make your newly purchased business a success.
A solicitor can help you draft legal binding agreements with the seller to prevent this sort of behaviour, thereby protecting your investment even further.

So as you can see, buying a business is riddled with pitfalls that can be avoided with sound legal advice. Whatever you decide, I wish you the best of luck and prosperity.

Mistakes to avoid when selling your business

Selling a business is often the culmination of years, if not a lifetime’s work, but poor decision making during the sale process could leave you worse off or worse still, you could lose it all.

Now I know at this point there’s likely to be one or two of you reading this thinking, “Come on Ross, why did you have to go scare us with the whole ‘Loosing it all’ speech?” Yes I suppose it doesn’t happen all that often provided you have the right legal advice during the sale and you don’t get distracted by the sale process, but it has happened to others and it’s your job to make sure it doesn’t happen to you.

Here are 5 simple tips to help you avoid short changing yourself when it comes to selling your business:

1.) The most successful sales happen when they are planned.

Before advertising your business, it’s wise to start refining the aspects of your business that are likely to get buyers excited, and correct the ones that will turn buyers off. Long term planning is essential if you hope to realise the best return, as some short comings in your business may take months if not years to correct. Take a look at our previous posts to see what gets buyers excited and what turns them off.

2.) Know what it is worth.

This one sounds obvious but you’d be surprised at how many people pick a figure that’s relative to what they bought it for or what they think it’s worth. Business valuation can be tricky, so don’t rely on your own judgement alone when it comes to putting a value on your business.

On the one end of the spectrum you could end up undervaluing your business by thousands of pounds, leaving you out of pocket. On the other end of the scale you could end up chasing buyers away with an unrealistic price.

Always get a second valuation done, business transfer agents will usually conduct a valuation for free with the aim of signing you up as a client. If there’s a big difference between valuation amounts then try to find out why.

There have been instances in the past where some agent’s have overvalued a business to secure a mandate and then locked the seller in with a strict contract which requires an upfront payment or monthly fee. Avoid this at all costs because the agent’s incentive disappears when they know they get paid regardless of whether they make a sale or not.

3.) Find the right representatives.

If you do decide to use a business transfer agent, try to avoid agents who are not based in your area. It’s unlikely they will have a handle on the finer details that may influence your businesses value and conducting viewing when based miles away does not sound like a recipe for success.

Avoid unrealistic monthly fees and contracts that tie you in for months. I’m not saying these agents don’t deliver results, I’m just saying that commission only agents have more incentive to find you a buyer.
One great way to identify whether your chosen agent is as good as they say they are is to use Google. Type the agents name plus the word “Review” or “Complaints” or something similar and see what other are saying about the agent.

4.) Say it like it is.

One big mistake to make is to provide inaccurate facts and figures to the potential buyer. Many sellers are emotionally attached to their businesses and figures are sometimes embellished to paint a better picture of the business. Often this is not out dishonestly, but rather subjective perspective.

If you are found to be inaccurate on any of your facts and figures, you could undermine the buyers confidence in your ability to provide accurate information and the whole deal could fall apart. Even if you do manage to retain the buyer’s interest, it’s unlikely that you’ll be in any position to negotiate when the buyer starts asking you to reduce your price because of misleading facts and figures. Say it like it is.

5.) Choose the right buyer.

I know, the temptation of taking the first or the highest offer is almost impossible to resist but despite first impressions this offer may not be the best one for you. Higher offers often have strings attached and in some cases buyers are looking to you for some form of seller finance or guarantees. Beware! You don’t know the buyer from a bar of soap. He could be a bad leader or difficult to get on with. If that is the case your customers will waive you goodbye and your talented staff will have made a dash for the exit long before you have chance to pick up the pieces.

When it comes to accepting an offer, don’t forget that businesses can take as much as 2 years to sell. Remember, being patient when selling a business is a very profitable virtue.

Selling a business: What turns buyers off?

A few weeks ago I raised a number of points about the factors that get business buyers excited when it comes to buying a business. This week I decided to show the other side of the coin and highlight a few points that turn buyers off. Hopefully I can give you some food for thought before you advertise the sale of your business and help you keep more buyers interested in what you have to offer.

If you read my last post you’ll remember that we divided buyers into two groups: Milkers and Builders. At this point some of you may be scratching your head asking “What is he on about?”, so here is a recap from my post a few weeks ago.

Builders buy businesses because they want to stamp their mark on the business and are after opportunities that represent growth potential. Milkers on the other hand are looking to purchase a business that generates a desired level of income and factors like stability and predictability take precedence over other attributes like growth potential and risk.

So now that you’re up to speed let’s dive straight into the factors that turn buyers off:
Declining sales – Many businesses suffer declining sales at some point during the business cycle. Many recover but some don’t and buyers of all types are unlikely to board a sinking ship. That’s not to say you won’t sell the business, you’re just likely to get less for it in the end because you’re not in a very good position to negotiate.

Rising expenses – Although not necessarily a negative indicator on its own, combining rising expenses with stagnant or declining sales is sure to turn buyers off. If it means holding out for a further 6-12 months while to make a few adjustments to improve the businesses trajectory, do it! You may be able to get more for the business in the end.

Owner dependence – Owner dependence is one negative aspect often overlooked when selling a business. Firstly, how much of your existing turnover is reliant on your personal relationship with clients? Will they just follow you out the door when the new owner takes over? Whether the buyer admits it to you or not, I can guarantee they are thinking about this. Secondly, is your business able to operate without your constant presence? If it can’t then surely it would make more sense for the buyer to work a job for the income instead of take a risk buying your business? Minimise your business’s dependence on you and watch its value increase accordingly.

Non-diverse customer base – Buyers are looking to minimise risk when buying a business. Buying a business with a small number of clients increases the risk that one lost client could have a dramatic impact on your turnover. Diversify your client base to make your business more attractive.

Indifferent staff – The potential buyer will meet your staff at some point before the sale of your business is concluded and they will make a judgement based on that introduction, and any subsequent contact with your staff. Solve staffing issues like lack of moral, training and appearance before selling your business. The buyer will notice if something isn’t quite up to scratch. Builders will see this as an opportunity, milkers will see this as a threat, but both will seek a discount on your selling price to justify the risk.

It’s worth pointing out that even if your business is guilty of all points raised above, you can still sell it. The downside is you’ll probably end up having to sell it for considerably less, only for some enthusiastic buyer to swoop in correct your mistakes and benefit from the groundwork you put in prior to selling the business. So I’d recommend implementing a plan to address the points raised above, before advertising your business. If you don’t end up selling, at least your business will be in tip top shape.

Legal aspects relating to the business sale process.

Buying a business is an exhilarating and potentially life-changing experience and the law affects the whole process. Understanding the legal issues will help you achieve a smooth sale and future success for your business. Here we summarise the legal process and some of the main points to consider.

Negotiations

When you express an interest in buying a business the seller may give you a pack (sales memorandum) with key information like the business assets, finances, operations and future projections. They might ask you to sign a confidentiality agreement to prevent staff, clients and rival business finding out they are selling the business. You might then make an “indicative offer” – a non-binding agreement subject to ongoing negotiations and checks.

You (normally through a legal adviser) will make ‘due diligence’ checks. The purpose of this is to make sure the business it what it seems to be and avoid unpleasant surprises. Typically, it involves reviewing financial documents, the business rental agreement and contracts with staff and clients; and evidence of the seller’s ownership of the business. While this takes place it is likely that you will continue to negotiate with the seller regarding things like the price, assets included in the purchase, and the guarantees they will commit to regarding state of the business.

Once these processes are complete you and the seller will sign the final agreement for the sale of the business.

Structuring the sale

You can purchase a business either as a share sale or an asset sale.
A share sale means that ownership of the entire business – the company, assets, staff and so on – is transferred from the previous owners to you. With an asset sale on the other hand, you purchase specific parts of the business such as the premises, stock, and intellectual assets like the name.

Share sales can be attractive in some cases – you might value business continuity and not want to tinker with a ‘magic formula’. On the other hand it does mean that you take on the liabilities of the business, such as unpaid bills and legal claims against it. The best option depends on your circumstances, and there are other issues – such as tax – that come into play.

Financing a new business

Unless you have enough cash for the purchase price, you will probably need to seek financial assistance either as a straightforward loan or in exchange for shares in the business.
If you can find willing investors this can be an attractive option as it reduces the financial burden on you and your business. On the other hand, you will need to accept that your control of the business and share of the profits is reduced.

The legal issues surrounding business purchases can be confusing and intimidating, especially for those involved in the process for the first time. Commercial solicitors will help ensure the legal side of the sale is watertight and works in your best interests.

5 mistakes to avoid when selling your business.

business for sale

Selling a business is often the culmination of years, if not a lifetime’s work, but poor decision making during the sale process could leave you worse off or worse still, you could lose it all.

Here are 5 simple tips to help you avoid short changing yourself when it comes to selling your business:
1.) The most successful sales happen when they are planned.
Before advertising your business, it’s wise to start refining the aspects of your business that are likely to get buyers excited, and correct the ones that will turn buyers off. Long term planning is essential if you hope to realise the best return, as some short comings in your business may take months if not years to correct. Take a look at our previous posts to see what gets buyers excited and what turns them off.

2.) Know what it is worth.
This one sounds obvious but you’d be surprised at how many people pick a figure that’s relative to what they bought it for or what they think it’s worth. Business valuation can be tricky, so don’t rely on your own judgement alone when it comes to putting a value on your business.

On the one end of the spectrum you could end up undervaluing your business by thousands of pounds, leaving you out of pocket. On the other end of the scale you could end up chasing buyers away with an unrealistic price.

Always get a second valuation done, business transfer agents will usually conduct a valuation for free with the aim of signing you up as a client. If there’s a big difference between valuation amounts then try to find out why.

There have been instances in the past where some agent’s have overvalued a business to secure a mandate and then locked the seller in with a strict contract which requires an upfront payment or monthly fee. Avoid this at all costs because the agent’s incentive disappears when they know they get paid regardless of whether they make a sale or not.

3.) Find the right representatives.
If you do decide to use a business transfer agent, try to avoid agents who are not based in your area. It’s unlikely they will have a handle on the finer details that may influence your businesses value and conducting viewing when based miles away does not sound like a recipe for success.

Avoid unrealistic monthly fees and contracts that tie you in for months. I’m not saying these agents don’t deliver results, I’m just saying that commission only agents have more incentive to find you a buyer.

One great way to identify whether your chosen agent is as good as they say they are is to use Google. Type the agents name plus the word “Review” or “Complaints” or something similar and see what other are saying about the agent.

4.) Say it like it is.
One big mistake to make is to provide inaccurate facts and figures to the potential buyer. Many sellers are emotionally attached to their businesses and figures are sometimes embellished to paint a better picture of the business. Often this is not out dishonestly, but rather subjective perspective.

If you are found to be inaccurate on any of your facts and figures, you could undermine the buyers confidence in your ability to provide accurate information and the whole deal could fall apart. Even if you do manage to retain the buyer’s interest, it’s unlikely that you’ll be in any position to negotiate when the buyer starts asking you to reduce your price because of misleading facts and figures. Say it like it is.

5.) Choose the right buyer.
I know, the temptation of taking the first or the highest offer is almost impossible to resist but despite first impressions this offer may not be the best one for you. Higher offers often have strings attached and in some cases buyers are looking to you for some form of seller finance or guarantees. Beware! You don’t know the buyer from a bar of soap. He could be a bad leader or difficult to get on with. If that is the case your customers will waive you goodbye and your talented staff will have made a dash for the exit long before you have chance to pick up the pieces.

When it comes to accepting an offer, don’t forget that businesses can take as much as 2 years to sell. Remember, being patient when selling a business is a very profitable virtue

Sell a business in the UK

business for sale

In this article we take an in-depth look at what it takes to sell a business, what makes a great business to sell, and how you connect with the right buyer for your cherished business. A business can mean so much more than just money to the owner. Genuine business owners want their business to fall into genuine people’s hands.

Many of us have spent a lifetime building our business and really want to make a sale that sees the business go forward as well as existing clients properly looked after. In this article I’ll go through all of the pitfalls that you could possibly imagine and ways in which you can maximise the value of your business prior to sale.

I apologise in advance for it being such a long read but being something as serious as your life’s work you can’t really put a price on this invaluable 15 or 20 minute read. I absolutely promise the information in this article will be of value and well worth the time invested in reading it if you’re looking to sell a business

Table of contents:

Selling a business: What gets buyers excited?
When is the right time to sell a business?
Why solicitors are a ‘must have’ when buying a business.
Mistakes to avoid when selling your business
Selling a business: What turns buyers off?
Legal aspects relating to the business sale process.

Selling a business: What gets buyers excited?

Before we get to grips with what get’s buyers excited, it’s worth pointing out that not all buyers are created equally. Business buyers in my experience come in two flavours, milkers and builders. They have different objectives when it comes to buying a business and knowing which one is more likely to buy your business is critical to planning your sales pitch. So let me first explain the difference between milkers and builders.
Milkers want a cash cow, something that will deliver a certain level of income or degree of return on investment.

They normally have an exact figure in mind and are working towards buying something that will generate that magic number. On the risk scale they tend to gravitate towards the less risky end.
Builders on the other hand are looking for something they can build up, something that’s not quite the finished article and has room for them to stamp their mark on. They are normally more active business owners and tend to position themselves a bit further along the risk scale towards the riskier end.

Ok so now you have an idea of the types of buyers, what gets them excited? Well there are many factors that appeal to both groups but these factors have varying degrees of importance to each buyer type as follows:

Extensive Financial Statements – All potential buyers will want to see the financial statements for as many years as possible to assess how reliable the income is, what the cash flow position is, what the businesses expenses are, potential problems and possible opportunities that may exist. It’s milkers who value this information the most though. They normally prioritise these numbers over everything else. Builders will also be looking at the numbers but that’s not the whole picture for them. Builders are looking for opportunities.
Good return on investment – Although quite an obvious one, milkers will be more concerned with the return on investment than builders. They are looking for a positive cash flow that provides stability for them to realise their return. Builders, on the other hand, will take this into account but they are also focusing on what the business might be worth in future.
Management team – An experienced, competent management team is essential for buyers who prefer a role that involves overseeing as opposed to being hands on with every aspect of the business. Buyers that are builders prefer a more informal structure that allows them to exercise control over most aspects, allowing them to get their hands dirty. On a whole businesses that are dependent on their owners do tend to be less attractive because of the reliance on the owners relationship with customers and vendors. People buy from people as the saying goes; you want to make sure that the correct people remain behind when you sell the business.
Opportunity to grow quickly. – Now we’re getting into the domain of the builder buyer who’s looking for an opportunity to make the business bigger and better, and thereby realise a handsome return. Remember to keep it real though. Buyers are not blind optimists, they are looking for real opportunities that they can inject energy into. Over inflated statements will only leave you looking like a bad car salesmen and this will probably lead to the buyer losing interest.

Exciting brand and product lines. – Businesses that have an exciting brand or have a collection of products or services in a fast growing sector are normally favoured by builders. They want to tap into this potential and are prepared to take a few risks to position themselves on an aggressive growth trajectory.
So identify what type of buyer your business is likely to attract. If you’ve been around for ages and you think stability is your strength then trumpet that, make sure the buyer knows what he’s getting. If on the other hand your business is still young or is still growing, then make sure you emphasise the real areas of opportunity that are available to the buyer. Painting a picture of the future in the buyers mind is likely to get them more excited and generate more interest.

When is the right time to sell a business?

Running a business can be a thankless undertaking, often requiring long hours and excessive stress levels as the daily norm. I know because I have firsthand experience at it.

But why do it then? Some do it because they love what they do, others have been doing for so long they don’t know what else they would do, and some just love the fact that they don’t have to answer to a boss.
I can identify with some of these points, but one of the reasons I do what I do is that one day I will be able to sell my hard earned business for a tidy amount and ride off into the sunset like some character out of a Clint Eastwood movie.

That’s where timing comes in. Timing the sale of my business correctly means more money in my pocket. I’ve spent years building my business as I’m sure you have too and I want what I’m owed (hmm that sounds like a line out a Clint Eastwood movie already). The more I get from the sale, the more options I have and surely that can only be a good thing.

So what’s the right time to sell then?

The most common response to this question is to sell when the market is growing and there is some room for the buyer to make a profit too.

Now I don’t know about you but I’ve got a business to run here and don’t have time to do an in depth analysis of my market and then dissect the information to arrive at the ideal selling date.
I also have yet to find a service that works similar to a hotel wake-up call, something like “Good morning Mr. Withers, this is your wake up call. We anticipate another 5 years of exceptional growth. Good bye.” Hmm I wonder if there is a business idea there.

So how do I know how healthy my sector is?

Other than rising sales here are three great ways to know when your industry is in good health
Firstly, I recommend keeping your ear highly tuned to your industry, read trade publications and find out, in passing conversation, from your suppliers and customers what they think will happen next. Everything you pick up, when taken with a pinch of salt, will help you build a better picture of your industry. This reservoir of knowledge will give you an unrivalled gut feel about your sector. So invest an hour a week to research your industry further.

Secondly, rising margins and new products or services to your sector are sure signs that things are on the up and good profits are to be anticipated. Buyers are looking for good prospects to invest in.
And thirdly, finding finance is easier and investors are actively looking to invest in your sector.

Conclusion to the right time to sell a business

Picking the right time to sell comes from a deep understanding of your industry and trading environment, so put some information gathering procedures in place and start listening. Knowledge is power after all.
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Why solicitors are a ‘must have’ when buying a business.

It seems quite obvious really. Handing over large sums of money for a business you’re not 100% familiar with. Surely you need some legal representation to look out for your interests? We certainly think so and that’s why we put together this refresher post to show why solicitors are a ‘must have’ for buyers and indeed all parties involved in the sale and purchase of a business.

If you’re buying a business and you’re thinking of going it alone, take a look at the following points to see just how valuable a solicitor can be during the business purchase process:

Share/Asset Sale

There are two main methods for structuring the sale of a business. The Asset Sale, which involves you selling the assets of your business to another business or person. And the Share Sale which involves you selling shares in your business to the new owner.

Each method has its pros and cons and we recommend that you seek legal advice, along with tax planning advice, to see how the proposed deal structure might affect you and your circumstances.

Review Lease

If you’re buying a business that leases its premises, be sure to have the lease checked out to familiarise yourself with both the terms of the agreement, and what your responsibilities to the landlord are.
A solicitor will be able to guide you through the terms of the lease, pointing out areas of concern and offering guidance to uphold your best interests. If the Landlord has agreed to assign the lease over to you, your solicitor can help you prepare the required documentation to ensure a smooth transition. If a new lease is to be signed, solicitors can assist you during this process too.

Heads of terms

When the basic terms of the sale have been agreed in principle, a Heads of terms will need to be drafted to outline the agreed terms of the deal. This is often referred to as a ‘roadmap’ for the sale and is normally not legally binding but helps to clarify the terms of the proposed deal.

Your solicitor should be called upon to review the Heads of terms to ensure your requirements have indeed been met and that the terms contained are in your best interests.

Negotiating a period of exclusivity

It’s not uncommon for buyers to request a period of exclusivity in which to complete the deal with the seller. Your solicitor can negotiate this period with the seller or their agents to ensure you can complete the deal without disruption or distraction.

Due diligence.

Once a deal has been agreed in principle, you will then be allowed to access the business’s sensitive information to assess whether it has been accurately reported to you in prior stages of negotiation.
A solicitor will be able to review contracts of all types including sales contracts, staff contracts and contracts with suppliers to ensure they are favourable and do not leave you exposed to future potential losses.

Purchase Agreement

Once due diligence has been undertaken, you are normally required to submit the first draft of a purchase agreement for the seller’s consideration. The seller will most certainly be using an experienced solicitor to handle the sale process on their behalf and that solicitor will seek to extract the most gain for their client.
If you choose not to employ a solicitor, you could be at a disadvantage when it comes to protecting your interests. You may not be familiar with the legal implications of the agreement and this could leave you exposed to future loses that would diminish the value of your investment.

Warranties and Indemnities

You, as the buyer, can request that certain promises be made in the form of warranties and indemnities. A good solicitor will be able to help draft meaningful warranties that the seller must sign to help protect your investment from misrepresentation.

If, at a later date, these promises are not realised, you could then take legal action to recover a chunk of the sale price.

After Sale Restrictions

Most buyers will look to have legal restrictions placed on the seller to prevent them from competing with the newly purchased business after the sale has been completed. You’ll also want to restrict the seller from poaching the clients and staff that have helped to make your newly purchased business a success.
A solicitor can help you draft legal binding agreements with the seller to prevent this sort of behaviour, thereby protecting your investment even further.

So as you can see, buying a business is riddled with pitfalls that can be avoided with sound legal advice. Whatever you decide, I wish you the best of luck and prosperity.

Mistakes to avoid when selling your business

Selling a business is often the culmination of years, if not a lifetime’s work, but poor decision making during the sale process could leave you worse off or worse still, you could lose it all.

Now I know at this point there’s likely to be one or two of you reading this thinking, “Come on Ross, why did you have to go scare us with the whole ‘Loosing it all’ speech?” Yes I suppose it doesn’t happen all that often provided you have the right legal advice during the sale and you don’t get distracted by the sale process, but it has happened to others and it’s your job to make sure it doesn’t happen to you.

Here are 5 simple tips to help you avoid short changing yourself when it comes to selling your business:

1.) The most successful sales happen when they are planned.

Before advertising your business, it’s wise to start refining the aspects of your business that are likely to get buyers excited, and correct the ones that will turn buyers off. Long term planning is essential if you hope to realise the best return, as some short comings in your business may take months if not years to correct. Take a look at our previous posts to see what gets buyers excited and what turns them off.

2.) Know what it is worth.

This one sounds obvious but you’d be surprised at how many people pick a figure that’s relative to what they bought it for or what they think it’s worth. Business valuation can be tricky, so don’t rely on your own judgement alone when it comes to putting a value on your business.

On the one end of the spectrum you could end up undervaluing your business by thousands of pounds, leaving you out of pocket. On the other end of the scale you could end up chasing buyers away with an unrealistic price.

Always get a second valuation done, business transfer agents will usually conduct a valuation for free with the aim of signing you up as a client. If there’s a big difference between valuation amounts then try to find out why.

There have been instances in the past where some agent’s have overvalued a business to secure a mandate and then locked the seller in with a strict contract which requires an upfront payment or monthly fee. Avoid this at all costs because the agent’s incentive disappears when they know they get paid regardless of whether they make a sale or not.

3.) Find the right representatives.

If you do decide to use a business transfer agent, try to avoid agents who are not based in your area. It’s unlikely they will have a handle on the finer details that may influence your businesses value and conducting viewing when based miles away does not sound like a recipe for success.

Avoid unrealistic monthly fees and contracts that tie you in for months. I’m not saying these agents don’t deliver results, I’m just saying that commission only agents have more incentive to find you a buyer.
One great way to identify whether your chosen agent is as good as they say they are is to use Google. Type the agents name plus the word “Review” or “Complaints” or something similar and see what other are saying about the agent.

4.) Say it like it is.

One big mistake to make is to provide inaccurate facts and figures to the potential buyer. Many sellers are emotionally attached to their businesses and figures are sometimes embellished to paint a better picture of the business. Often this is not out dishonestly, but rather subjective perspective.

If you are found to be inaccurate on any of your facts and figures, you could undermine the buyers confidence in your ability to provide accurate information and the whole deal could fall apart. Even if you do manage to retain the buyer’s interest, it’s unlikely that you’ll be in any position to negotiate when the buyer starts asking you to reduce your price because of misleading facts and figures. Say it like it is.

5.) Choose the right buyer.

I know, the temptation of taking the first or the highest offer is almost impossible to resist but despite first impressions this offer may not be the best one for you. Higher offers often have strings attached and in some cases buyers are looking to you for some form of seller finance or guarantees. Beware! You don’t know the buyer from a bar of soap. He could be a bad leader or difficult to get on with. If that is the case your customers will waive you goodbye and your talented staff will have made a dash for the exit long before you have chance to pick up the pieces.

When it comes to accepting an offer, don’t forget that businesses can take as much as 2 years to sell. Remember, being patient when selling a business is a very profitable virtue.

Selling a business: What turns buyers off?

A few weeks ago I raised a number of points about the factors that get business buyers excited when it comes to buying a business. This week I decided to show the other side of the coin and highlight a few points that turn buyers off. Hopefully I can give you some food for thought before you advertise the sale of your business and help you keep more buyers interested in what you have to offer.

If you read my last post you’ll remember that we divided buyers into two groups: Milkers and Builders. At this point some of you may be scratching your head asking “What is he on about?”, so here is a recap from my post a few weeks ago.

Builders buy businesses because they want to stamp their mark on the business and are after opportunities that represent growth potential. Milkers on the other hand are looking to purchase a business that generates a desired level of income and factors like stability and predictability take precedence over other attributes like growth potential and risk.

So now that you’re up to speed let’s dive straight into the factors that turn buyers off:
Declining sales – Many businesses suffer declining sales at some point during the business cycle. Many recover but some don’t and buyers of all types are unlikely to board a sinking ship. That’s not to say you won’t sell the business, you’re just likely to get less for it in the end because you’re not in a very good position to negotiate.

Rising expenses – Although not necessarily a negative indicator on its own, combining rising expenses with stagnant or declining sales is sure to turn buyers off. If it means holding out for a further 6-12 months while to make a few adjustments to improve the businesses trajectory, do it! You may be able to get more for the business in the end.

Owner dependence – Owner dependence is one negative aspect often overlooked when selling a business. Firstly, how much of your existing turnover is reliant on your personal relationship with clients? Will they just follow you out the door when the new owner takes over? Whether the buyer admits it to you or not, I can guarantee they are thinking about this. Secondly, is your business able to operate without your constant presence? If it can’t then surely it would make more sense for the buyer to work a job for the income instead of take a risk buying your business? Minimise your business’s dependence on you and watch its value increase accordingly.

Non-diverse customer base – Buyers are looking to minimise risk when buying a business. Buying a business with a small number of clients increases the risk that one lost client could have a dramatic impact on your turnover. Diversify your client base to make your business more attractive.

Indifferent staff – The potential buyer will meet your staff at some point before the sale of your business is concluded and they will make a judgement based on that introduction, and any subsequent contact with your staff. Solve staffing issues like lack of moral, training and appearance before selling your business. The buyer will notice if something isn’t quite up to scratch. Builders will see this as an opportunity, milkers will see this as a threat, but both will seek a discount on your selling price to justify the risk.

It’s worth pointing out that even if your business is guilty of all points raised above, you can still sell it. The downside is you’ll probably end up having to sell it for considerably less, only for some enthusiastic buyer to swoop in correct your mistakes and benefit from the groundwork you put in prior to selling the business. So I’d recommend implementing a plan to address the points raised above, before advertising your business. If you don’t end up selling, at least your business will be in tip top shape.

Legal aspects relating to the business sale process.

Buying a business is an exhilarating and potentially life-changing experience and the law affects the whole process. Understanding the legal issues will help you achieve a smooth sale and future success for your business. Here we summarise the legal process and some of the main points to consider.

Negotiations

When you express an interest in buying a business the seller may give you a pack (sales memorandum) with key information like the business assets, finances, operations and future projections. They might ask you to sign a confidentiality agreement to prevent staff, clients and rival business finding out they are selling the business. You might then make an “indicative offer” – a non-binding agreement subject to ongoing negotiations and checks.

You (normally through a legal adviser) will make ‘due diligence’ checks. The purpose of this is to make sure the business it what it seems to be and avoid unpleasant surprises. Typically, it involves reviewing financial documents, the business rental agreement and contracts with staff and clients; and evidence of the seller’s ownership of the business. While this takes place it is likely that you will continue to negotiate with the seller regarding things like the price, assets included in the purchase, and the guarantees they will commit to regarding state of the business.

Once these processes are complete you and the seller will sign the final agreement for the sale of the business.

Structuring the sale

You can purchase a business either as a share sale or an asset sale.
A share sale means that ownership of the entire business – the company, assets, staff and so on – is transferred from the previous owners to you. With an asset sale on the other hand, you purchase specific parts of the business such as the premises, stock, and intellectual assets like the name.

Share sales can be attractive in some cases – you might value business continuity and not want to tinker with a ‘magic formula’. On the other hand it does mean that you take on the liabilities of the business, such as unpaid bills and legal claims against it. The best option depends on your circumstances, and there are other issues – such as tax – that come into play.

Financing a new business

Unless you have enough cash for the purchase price, you will probably need to seek financial assistance either as a straightforward loan or in exchange for shares in the business.
If you can find willing investors this can be an attractive option as it reduces the financial burden on you and your business. On the other hand, you will need to accept that your control of the business and share of the profits is reduced.

The legal issues surrounding business purchases can be confusing and intimidating, especially for those involved in the process for the first time. Commercial solicitors will help ensure the legal side of the sale is watertight and works in your best interests.