HOW TO SELL YOUR BUSINESS AN ENTREPRENEUR’S GUIDE

HOW TO SELL YOUR BUSINESS
AN ENTREPRENEUR’S GUIDE

The best advice we can give business owners is that you need to plan your business exit strategy at least three years in advance. You would be amazed just how many business owners forget.

Selling your business will be the most valuable transaction a business owner will make. It’s similar to selling a property; you’ll be wanting to get the highest possible price. When you sell a property, you spend time making it look more attractive to potential buyers. This shouldn’t be any different for a business.  Many business owners miss out on the opportunities to enhance the value of their business. And one of the biggest hurdles is that sometimes the business isn’t simply ready to be sold.

Many business owners get bogged down with the day to day operations of the business and leave their exit planning until it’s too late. Don’t make this mistake because it will be the difference between success and failure.

Looking at the intricacies of your business from the outside is usually the best way that you can identify parts of your business that might reduce the value of your sale and allows you to put these right in plenty of time.

DUE DILIGENCE

The best method of doing this is to carry out a full due diligence check on your own business. If you’re not familiar with the term ‘due diligence,’ it’s basically looking at your business in fine detail in areas which include your financials, operations, marketing, and human resources, etc.,

When buyers look to negotiate, they will always try to offer a lower asking price, and if the buyer can see any uncertainties or indeed any lack of clarity regarding the business, this will only strengthen the buyer’s ability to negotiate and of course be able to reduce the value.

By carrying out a thorough due diligence on your business before you sell allows you to identify any underlying problems or issues and enable you to fix them.

You need to pay particular attention to certain things when you undertake an internal due diligence as these are what a buyer tends to look for.  Make sure that you have all your contracts in place, both with suppliers and clients. It’s surprising just how many businesses operate without comprehensive contracts in place. If this isn’t addressed, it will decrease the value of your business.

Another vital factor to consider is that of any lease agreements, for example, on any property. You might find that a potential buyer is looking to relocate your business so that they can integrate it into another existing operation elsewhere. If there are obstacles that could prevent the buyer from doing this, the value would be significantly affected and may even prevent the sale altogether.

Something else that you need to consider would be the level of dependency the business may have on both the current owner and other key staff. Most businesses tend to be linked with the business owner’s knowledge, skills, and relationships. This can affect the buyers’ perceived value.  It’s vital that this is eradicated. The best way that this can be achieved is through the implementation of well-documented systems and processes.

PLANNING

When you’re heavily involved in the day-to-day running of your business it is difficult to take the time out to consider something which may seem so far away: however, given the potential financial implications,   it is hugely important.

Try to spend at least one day out of the month with no interruptions so that you can plan and review the strategy for your business as well as your exit strategy. It doesn’t matter if you’re not looking to sell your business right now, it’s still important that you are considering what your eventual plans will be.

Procrastination when it comes to considering and planning an exit strategy will more often than not cost owners hugely in terms of lost value. It pays to plan ahead and considering a business tends to be the majority of an individual’s most valuable assets, the value of considering and planning for your exit in advance will be hugely rewarding when the time eventually comes to sell.

How are you going to go about improving your business with the view of being able to sell it in the future?  It’s quite easy….The best way to achieve this is to look at previous businesses that have sold in your business sector.  You’ll probably know of a competitor of yours that has been sold. You need to identify why that company was an attractive offer to the acquirer. Do your own research on Google or any trade publications that write about your industry.

By doing this, you’ll start to get a better understanding of the business that was sold. Perhaps they had an exemplary managing director; their website was outstanding. The business might have won awards, had a loyal customer base and employed loyal and committed staff as well as announcing year on year growth in both turnover and profit.

It’s important to note that the CEO will only want to buy your business if it is going to add value to them, complements their existing product or service or if it is going to help them to expand into a new market which they can conquer.

RESEARCH

Another great thing about tracking previous acquisitions is that you’ll get to understand what the buyer is looking for. Try to put together a list of 10 businesses in your sector that have been sold. Find out what made them so attractive to the acquirer.

Another part of your strategy is to identify who you want to sell your business to. Find at least three businesses that you think are an ideal fit for your business and try to establish what it is about your business that would make it an attractive offer to them.

For example, by selling well before patents expire – as patents are often where the real value lies – but bear in mind that they do have defined time spans.

The next step is to focus on building your business so that it will deliver three or five years of healthy profits in excess of 25% per annum. Without demonstrating ongoing profits, the chances of you selling your business is going to be virtually impossible.

The safeguarding of cash in your business is also essential if you’re looking to impress a potential buyer during the due diligence phase. Remember the saying “turnover is vanity, profit is sanity and cash is reality.” In the run-up to your sale, try to make sure that your cash flow is in a strong position.

Don’t forget; acquirers want something with value. Sell the unique points of your business. Put yourself in the shoes of an acquirer and ask yourself some key questions. How easy is it to copy? How many competitors are there?

To guarantee that you’re going to get the highest value for your business, it is essential that you start early with detailed planning. Be sure to approach experts and select a professional advisor who can guide you through the whole selling process. They will be able to point out some key areas that need attention. For example, if you want to exit the business completely, be sure to have staff who are capable of running the business so that it continues in being successful.

ALLOW ENOUGH TIME

Give yourself a year – at the very least, three months. That’s true whether it’s a company with a modest turnover or a company with a substantial one. Another area of due diligence is that your potential buyer will want to view all of your documents. Be prepared and start putting all of these together in one place. For example, your M&A consultant may suggest using an electronic data room. This is a confidential online storage facility, specifically for your use only. You can, however, permit the acquirer access to view these documents at a time that suits you.

Does your business have any intellectual property (IP)?  This is also another area that’s extremely important. You certainly aren’t going to want to have any issues with IP when it comes to selling your business. If there are any such issues, this will result in delays, which can often be expensive and in the worst case, could prevent the buyer from wanting to buy.

Business owners tend to assume that the potential acquirer is a competitor. While this might often be the case, it is a great exercise for you to spend some time on identifying buyers who have a clear synergy between your businesses. Think outside of the box so that you can also look to sell your business to potential buyers who are in a different market to you altogether. Having the right buyer, not necessarily one that is your competitor might be the one who pays the greatest price for your business, and once you know who is going to be interested, it’s easy to then tailor your preparation so that it suits their needs.

In summary, selling a business isn’t an easy task. It is going to take a lot of time and commitment as issues will need to be addressed before you even start the selling process. Acquirers need to be confident that your business is sustainable and has a great reputation. But more importantly, you need to show that it has a strong future.

The only way that you are going to achieve this is to plan your exit early and prepare your business for sale. CIBB can help you to accomplish this so that you benefit financially and also emotionally.

THE FOUR PRINCIPLES
OF CIBB

The business sales market is always changing in terms of the types of deals available on the market, the deal structure and the buyer and seller profiles; however, the four principles of CIBB do not change.

It makes no difference what size your business is or in what industry sector or region, behind every business sale lies four key principles. And it’s these principles that are the cornerstone of everything CIBB do for you.

PRINCIPLE 1

Take The
Initiative

Even the most active of buyers don’t very often come to you directly. Selling businesses is simply a discipline of both sales and marketing. We diligently outline the opportunity that your business is going to offer to the market. Only then can you make contact with potential buyers.

HOW DOES CIBB ACHIEVE THIS?

CIBB has a team of highly skilled marketing and sales professionals. Our communication experts have a wealth of experience liaising with key decision-makers. All marketing documentation, for instance your Information Memorandum is produced to the highest standard to ensure that your competitive advantages and future opportunities are carefully and clearly presented.

PRINCIPLE 2

LOOKING TO
THE FUTURE

The key factor with any business sale is the potential to grow. As such, the anticipated financial performance (financial projections) over the next 3-5 years can be something that will make or break a sale. Naturally your buyer will want to see historic profit data for the past three years, but without the future projections, they will not appreciate the full benefits your business has to offer..

HOW DOES CIBB ACHIEVE THIS?

We have qualified accountants who will produce all the financial information required. This will include either 3 or 5 years of financial forecasts and projections. Our accountants will also investigate ‘Profit Planning’ which is a crucial business activity and one that will help motivate any buyer to see the value of your business and the full potential it may have.

Key Points:

PRINCIPLE 3

LOOKING BEYOND
YOUR ARENA

Buyers in the M&A world might not necessarily be around the corner from you. They may present from a completely different business sector to the one you are selling.  The best buyers are going to be the ones that are fully engaged and motivated.

HOW DOES CIBB ACHIEVE THIS?

It all boils down to in-depth research and having an extensive network of active and trusted buyers who share their particular acquisition criteria with us. We guarantee a genuine, realistic offer within 6 months of you coming on board.

Key Points:

PRINCIPLE 4

CREATE A COMPETITIVE ENVIRONMENT

Creating a pool of potential buyers is a necessity with selling any business. For a business owner to get the very best price and terms, they will need to have multiple parties interested in buying their business.  Negotiating with only one potential buyer puts you at a disadvantage.  The buyer will know this too of course.

HOW DOES CIBB ACHIEVE THIS?

After our research team has sourced and matched your business with potential buyers, our communication experts have contacted the top decision-makers, our team of negotiators then take over. They will manage the whole negotiation process as well as guide you in how to conduct successful meetings face to face.

We will set deadlines for further negotiations so that we are in control. We will continue to assess any other offers with you so you not only get the best offer but you can decide which buyer is right for you.

Key Points:

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