‘If choosing to start your own business is one of the most important decisions you will ever make, so is deciding how to pass it on’, says business writer Graham Watkins.
There are over 2 million privately owned companies in the UK employing nearly half the workforce and more than 17 million in the USA. Business owners have spent years learning how to run and grow their company but virtually none have any idea about how they will sell up when the time comes.
It was no different for us. After 11 years of running a thriving business it was time to let someone else take over. My wife and I decided to cash in and sell. Three years of stress followed before we completed a deal and walked away. During that time we went through a meteoric learning curve. There were false starts, dashed hopes and tears on several occasions. Planning, preparation, employing intermediaries, finding a quality buyer, negotiating a good price and avoiding traps laid by buyers were issues we knew nothing about.
There were textbooks written by ‘experts’. They dealt with the mechanics of selling a business but did not provide the heart of the information we needed, how to do it better, for a higher price and in a way that protected our workforce.
We realised that our exit plan should have began years earlier. Like an endowment policy, starting sooner gives bigger rewards. Thinking about selling focused our attention on issues that strengthened the company and produced superior performance. We built a team that could operate when we had gone. The team took responsibility, and sharing leadership with them energised our operation. The business grew and our jobs got easier.
We took a hard look at the company. What would make it more attractive to a buyer? Smart premises, literature and staff uniforms were a start but there was more to be done. The business needed structure, a strong business plan and a clear vision for the future.
Smartening up the business included settling disputes, making sure the business was legal, software licensed, taxes paid, contracts of employment updated and returns properly file
d. All potential minefields when the lawyers start probing.
We learned early that good advisors pay for themselves. Ours added credibility and experience. They opened doors to buyers we didn’t even know exist. For us, selling up was the biggest deal we had ever done and no time for DIY.
A properly prepared valuation was essential. It’s the tool needed to establish a realistic price for selling the company. A buyer also values the business and uses his figure, usually lower, as a negotiating tool. Our valuation added confidence and the realism that we needed to do a deal.
Finding our buyer was a problem. Advertising in the press would make the business look like a lame duck. Protecting our identity behind a box number would not get the right response. Quality buyers don’t find their target companies in the paper. Our advisors started to identify prospects and approaching them, while at the same time, protecting our confidentiality. It was time consuming but the transaction justified it.
A company sale is like any other, only bigger. It needs to be planned and prepared for, if you want to win your objectives and strike a good deal. Negotiating tactics should be flexible and realistic or you will overplay your position. Use your advisors and do your homework on the buyer before you negotiate. We did and it paid off handsomely.
After we struck the deal all hell broke loose. Auditors and lawyers descended on our company dissecting it for any weaknesses or flaws. We were glad we put our house in order beforehand. We had to keep calm during due diligence and answer all questions through the lawyer. He protected our positions and reduced our exposure to potential claims from the buyer.
The hardest part for us was the ‘Completion Meeting’ when we signed away our company. A traumatic last act, but finally we were free to ride into the sunset.
Article reproduced courtesy of the Western Mail.