When the time comes to sell up, unless you are one of the lucky few who are directly approached, it can be a daunting prospect to find someone to take over the reins. However, there some well-established methods of finding a buyer.
When the time comes to sell up, unless you are one of the lucky few who are directly approached, it can be a daunting prospect to find someone to take over the reins. However, there some well-established methods of finding a buyer.
Whether they are called business brokers, business transfer agents or business sale agents, they all perform essentially the same service.
They specialise in small and medium-sized businesses and help them prepare for the sale process and present themselves in the most attractive way. They should also have sector knowledge.
Brokers are usually able to keep the name of your business confidential in the early stages, which is a big plus for most companies.
Their services include marketing the business across various websites and via contacts, dealing with initial enquiries, verifying that buyers are credible and have sufficient funds, and assisting with price negotiations. They will also try to find more than one buyer so as to engineer an auction process to bid up the sale price.
They can be extremely useful in the due diligence stage – which is usually the most fraught part of the sale process – by acting as an intermediary between seller and buyer and by ensuring the seller knows exactly what is on offer. As with house sales, direct contact between buyer and seller risks rows and disputes, and having a middleman smooths over tricky parts of the deal process.
Business brokers operate a range of charging structures and you must read the small print closely to make sure you are aware of the true cost of their services. Make sure you set aside time to read through the terms and conditions of your contract with the broker from start to finish, and get advice if you think you need it.
Some are commission-based, with an initial payment as a retainer and the rest payable once the sale goes through. This could be 2% to 12% of the sale price. Others will charge a flat rate.
Some may not charge an upfront fee; however, costs will still be incurred before the sale as lawyers will need to be involved in drafting contracts, heads of terms and other formalities. Law firms will want money on account before starting work on behalf of clients.
Advertising costs are also likely to be incurred, and you may need additional accountancy services to ensure your books are up to date and presentable.
Larger companies may be expected to set up an online data room where the buyer’s professionals can inspect relevant information confidentially. If this is the case make sure it is always up to date.
A number of websites have sprung up that market businesses, in much the same way as homes are bought and sold on the internet through estate agents and aggregators such as Right move and Zoopla.
Potential buyers will want to see a summary of the business and photos of it. At this stage keep the summary short, focusing on the work the business does, where it is, any USPs it has, why you are selling, the turnover and the potential for growth.
Do look at how long companies have been sitting on the site unsold; this is quite a passive way of selling a business and it may be that some companies on them do not ever find a serious buyer. Try to find a website that appears to be more successful at selling businesses of your type in your area.
You will need a brochure in print and online versions containing key information, financial data and professionally taken pictures of the business.
If you use LinkedIn, consider if any of your contacts might be interested. It’s not a good idea to use non-business social media – the likelihood is you will get non-serious interest and low offers.
Do attend any trade shows in your area and make sure the sale information is online first so potential buyers have easy access to it. Similarly, your online and print trade press is likely to have a businesses for sale section.
Has anyone in your sector sold a business recently? They may know of potential buyers or have sound advice about the sale process. Since they are no longer trading they should be able to be candid in what they say.
Just as when you set up the business you researched who its potential customers could be, now it is time to consider who your buyers might be depending on what type of business you are.
Most businesses are single premises operations trading within a local area, typically retailers, trades or in hospitality or professional services. Buyers for these could be individuals who have made money and want to run a business, or a competitor, whether locally or nationally, that wants to expand in your area or likes the look of your customers.
There has been an explosion in small online-only business trading via platforms such as eBay, Vinted, Airbnb and Etsy. These firms have few assets but for the name and customer list so a buyer is likely to be another similar outfit or, for the lucky ones, an investor who believes in your growth potential and will pay accordingly.
Again, a competitor is the most likely buyer, who either wants your staff, customers and products or services for itself or who wants them out of the marketplace. Buying your firm will increase the range of products and services it can sell to existing customers. If you have licensed products that are leased to customers or subscription-based services, a buyer will be interested in the steady revenue stream they generate.
The business model for single-site professional services firms has become increasingly strained and many find merging is the solution to surviving in a market in which online-only rivals are taking a larger and larger market share. Obvious savings can be made by integrating non-fee-earning operations and revenues can be enhanced by retaining the best professionals from each firm.
Look closely at your business to identify what is most attractive about it. Work on developing and highlighting those factors to maximise your sale price. They may not be the ones you first think they are. For example, an e-commerce firm may have bespoke software that pushes its products up search rankings or a slick SEO marketing operation. These could be the real value of your business not your customers or products, and a buyer could come from outside your sector, for example, a technology firm that has resources to develop your software that you don’t.
Could your senior staff take the business over in a management buy out? They may not be able to afford to buy it outright but they could pay for it in instalments.
Is there anyone in your supply chain for whom your company could be a good fit? Vertical integration of this sort could bring cost savings to the buyer and create efficiencies by bringing together the two companies’ activities under one roof.
Selling a business without professional help is a daunting task. Negotiations can easily go wrong, buyers can be difficult to find and maximising the sale price takes expertise. This article only touches on the many issues involved and anyone seriously considering selling their business will need bespoke professional help.
For more information about the process of selling your business please see our article Selling Your Business: The Process Explained.
The friendly team at Finsbury Robinson will be able to deal with all your questions and give you advice tailored to your individual business. If you want help with devising an exit strategy or with selling your business, please call us on 0208858 4303 or email us at info@finsburyrobinson.co.uk
Angus Walker 08th August 2024
