Skip to Content

Masterclass: Bridging the Valuation Gap – Oxford Belfry, 30 Nov 2017

A free Masterclass specifically to provide business owners with the information and guidance on how to value and prepare their Companies for a future sale.

This Masterclass will focus on how to minimise the gap between Vendor expectations and Acquirers valuations.

By understanding how the sale process operates and what needs to be done in preparation, business owners can increase the value and saleability of their businesses and realise the price they hope for.

The Masterclass will cover:-

THE BASIC ESSENTIALS 

Exit Options – MBO, BIMBO, MBI, Trade Sale or Financial Sale

Understanding Valuations – methodologies, price does not equal value

Deal Structures – explaining earn-outs, deferred payments and more

Tax Implications – structuring for tax efficiency

Due Diligence – what this entails and how to prepare

PREPARING A BUSINESS FOR SALE

What Acquirers look for in a target

Financial management/forecasting

What causes deals to fail

Strategies and tactics to increase value ahead of a sale

CREATING A FAVOURABLE SALE ENVIRONMENT

Competitive tension

Handling offers

Negotiations and what to expect

The different stages of a typical sale process

Avoiding “sellers remorse”

Life after sale


Date:              Thursday, 30 November 2017

Time:             10am to 1pm (Registration at 9.30am)

Location:      The Oxford Belfry, Thame, Oxford, OX9 2JW

Cost:             Free; lunch & workbooks included

To register your interest, please CLICK HERE.

Masterclass: How to Maximise Shareholder Exit Value – Stockport, 7 Dec 2017

A free Masterclass designed to provide business owners with the information and guidance on how to maximise Shareholder exit value, in preparation for a future sale.

By understanding how businesses are valued, how deals are structured and how the sale process operates, business owners can significantly increase the value and saleability of their businesses and realise the price they hope for.

The Masterclass will cover:-

THE BASIC ESSENTIALS 

Exit Options – MBO, BIMBO, MBI, Trade Sale or Financial Sale

Understanding Valuations – methodologies, price does not equal value

Deal Structures – explaining earn-outs, deferred payments and more

Tax Implications – structuring for tax efficiency

Due Diligence – what this entails and how to prepare

PREPARING A BUSINESS FOR SALE

What Acquirers look for in a target

Financial management/forecasting

What causes deals to fail

Strategies and tactics to increase value ahead of a sale

CREATING A FAVOURABLE SALE ENVIRONMENT

Competitive tension

Handling offers

Negotiations and what to expect

The different stages of a typical sale process

Avoiding “sellers remorse”

Life after sale


Date:                         Thursday, 7 December 2017

Time:                        10am to 1pm (Registration at 9.30am)

Host & Venue:      Allens Accountants, Wellington Road, Stockport, SK1 3TH

Cost:                          Free; refreshments & workbooks included

To register your interest, please complete the form below:-

 

Masterclass: How to Maximise Shareholder Exit Value – London 9 November 2017

If thoughts of a sale are on your horizon, however distant, then this Masterclass is a great way to gather the information you need on how to prepare for this life-changing transaction. It’s consistently demonstrated that owners who prepare for exit attract premium prices.

At the Masterclass you’ll get practical advice and guidance from business owners and advisors with many years’ experience in selling, growing and buying companies. Other than 3 hours of your time, there’s no cost involved. Attendees also receive a complimentary detailed business valuation report – a great way to start your planning.

Amongst the subjects covered will be Timing a Sale, Valuation Methods, Acquisition Criteria, Deal Structures, Tax Planning, Deal Negotiations, Due Diligence and Confidentiality. Also to be covered: what’s involved in selling a business, the legal and financial issues to consider, the factors that impact price and what you can do to boost sale value and get your business “exit ready”.

Here’s what a previous delegate said: “… thought provoking, filled with useful, practical advice from people who have been there”.

Date:              Thursday, 9 November 2017

Time:             9.00am to 12 noon

Hosted by:    BLG Wealth

Location:      Laurence Pountney Hill, London EC4R 0HH

Cost:             Free

To register your interest, please CLICK HERE.

Latest update for Price/Earnings Multiples for the Engineering Sector

Latest update for Price/Earnings Multiples for the Engineering Sector

One of our Valuers has just advised that the FTSE Engineering Industry Sector P/E Ratio at close of business on Friday 21 April 2017 was 33.43.  So applying a 50% discount for an privately owned (unquoted) business provides a ratio of 16.7.  But, before anyone reaches for the bubbly, an element of actual or perceived risk needs to be built into the final figure used.  Conversely, if the business is a low risk, highly profitable and stable business with excellent future prospects, then the consideration could be given to reducing the discount.

The Investors Chronicle recently carried an article indicating that with the dramatic rise in the P/E ratios over the last 12 months, care should be taken when these higher ratios are used in business valuations, a view which we would fully endorse.  A year to 18 months or so ago we were looking at similar FTSE P/E ratios in the low 20’s giving typically adjusted ratios for valuing engineering businesses at around 12.  The reason for the large rise has been more to do with the continuing fall in interest rates and also the fall in the £ than to do with improved business earnings.  With falling interest rates, investors are seeing and more importantly accepting lower yields as the norm.  Over the last 1 to 2 years, yields appear to have generally fallen by as much as 2% to 3%.  Industry with export business has benefited from the fall in the £ which is seen by the market as potentially boosting net earnings, hence the rise in the market price of the share.  As a consequence, the P/E Ratio rise for the Industrial Engineering Sector has been boosted by those companies with export markets.  It does rather cloud the position with those businesses that have predominantly UK related business, with little or no overseas sales. Here the P/E ratios would not have seen such an increase. Unfortunately, the FTSE figures are based on a basket of around 20 large quoted companies.

If you decide to rely on an EBITDA valuation basis for a business the same problem will arise on the multiple applied.  At the end of the day, price is normally determined by the risk factors, affected by items such as spread of turnover/customer base, niche products & services, repeat business with on-going contracts, reputation, strength of second tier management, not to mention financial return on the investment.

Of course, when selling a business, a broker should aim to create a competitive bidding environment amongst interested parties, focusing on all the USP’s  – which then becomes less about price and more about value.

For your independent business valuation report, please CLICK HERE.

New London Based Business Broker – Langley London Ltd

Langley London LtdStirling is pleased to announce that it has bought back the name of Langley London Ltd to the Borough High Street, near to London Bridge Station after an absence of nearly 20 years. The business will trade as a London based Business Broker, predominantly for selling businesses with a turnover of over £1m.

Roger Smith, Director of Stirling and Langley explained that a greater presence was required in London, offering well established businesses the opportunity to be sold using a proven method of finding suitable strategic “target” buyers. As with Stirling, the business will use a sensible fee structure without onerous terms & conditions, offering Vendors value for money for a premium service.

Langley London Ltd was for many years previously associated with the Borough High Street, having been set up at 161 Borough High Street as far back as 1920 (originally as Merchant Shippers)!

Enquiries can be made by phone on 020 8012 8450 or by email: info@langleylondon.com

CEO Exit & Succession Planning

Exit PlanningCEO Exit & Succession Planning

Business owners face a number of challenges when they try to sell or transition out of their business. In fact, four out of five businesses that are listed for sale never get sold – and with the baby boomers preparing for retirement, there is a risk of a glut of businesses on the market for sale.  Whether you want to sell your business, hand it off to family members, or transition it to your leadership team, you have to be ready.

Stirling Business Transfer Specialists & The Business Coaching Company’s CEO Exit and Succession Planning Program is designed to help you prepare and achieve the successful sale of your company.

Here are three reasons why you should join:-

1. STRENGTHEN YOUR BUSINESS TO MAKE IT MORE PROFITABLE, VALUABLE, AND ATTRACTIVE TO A PROSPECTIVE BUYER

During each meeting you will discover new strategies and tactics to strengthen your business, increase profits and cash flow, and ultimately make it more valuable. That way, selling or transitioning your business becomes seamless.

2. TAP INTO THE WEALTH YOU HAVE CREATED IN YOUR BUSINESS.

You have spent years and lots of sweat building your business. Make sure that it is set up for an easy transition and that you can get access to that wealth. Many business owners are going to be in for an unpleasant shock when they find out that their wealth is trapped in their businesses, the business is not as valuable as they thought, or simply no-one will buy it because its not a good investment.

The CEO Exit and Succession Planning Program is laser-focused, helping you unlock the wealth your business has generated.

3. HAVE MORE TIME TO ENJOY OTHER PARTS OF YOUR LIFE.

Many business owners feel like they spend too much time in their business and that the business is too dependent on them. The CEO Exit and Succession Planning Program sets you up to have more time, spend more time as a CEO (instead of a “fire fighter”) and enjoy better balance in your life. This program will help you restructure your business to run without you.  Then you will have something easier and more valuable to sell.

 “…each meeting covers a different topic to help you strengthen your business and prepare for exit/transition…”

With structured content and thought provoking exercises plus an opportunity to hear from various experts, you and your coach will develop unique action plans to increase profits, cash flow, and have maximum options when it comes to tapping into the wealth in your business.

Whether you are looking to transition out of your business in the next year or two, or want to develop a strong foundation now for the future,  The CEO Exit and Succession Planning Program will deliver ongoing value. Each meeting covers a different topic to help you strengthen your business and prepare for exit/transition.  The program is designed around your busy schedule and is only open to business owners with an established profitable business.

This program is 100% results driven:-

  • 1:1 Exclusive Support
  • Convenient to your busy schedule.
  • Practical, learn best-practices for building a strong business that is not dependent on you and that is attractive to buyers, investors, and/or your next generation of leaders.
  • Ongoing support and accountability throughout so that you achieve your goals of a high value business sale.
  • Develop strategies to make your business more profitable and valuable while having more time to spend outside the business. Structure the business to run without you.

“Russ is a powerful executive coach and businessman, bringing forth his commitment to helping clients achieve business results with clarity and focus. His ability to move a conversation forward, to ground those involved in the conversation, and to pinpoint with accuracy the root of a problem makes him a powerful practitioner…”  – Donna Karlin – International Speaker & Author

“Russ has a knack for understanding the business issues at hand with his sincere, inquisitive and personable approach. I highly recommend Russ as his experience with strategy, turnarounds, restructuring, and operations is sound and will be of great benefit to any business seeking advisory services in this regard..”  – Kim La Plante, Microsoft Management Consulting

For further details, venues and to register your interest, simply fill in the form below:-

 

How to Maximise Business Value

Should you be thinking of selling a business, there are many things that can be done to maximise your business value, as part of a business development plan. But whether or not you wish to sell, it is as well to remember that many business owners do not plan at all, which may account for 3% of business owners with a written business plan, earning more than the other 97% added together! Here are ten ideas to consider if you wish to increase your business value prior to selling and a further ten, when placing your business up for sale:-

Maximising Business Value (Pre-Sale)

1) Focus on selling. Nothing happens unless selling is taking place. Concentrate on selling the benefits of your products and services rather than just the features of your products alone. You don’t have to have the best products but an “outstanding service” can lead to an “outstanding performance”. Selling is a numbers game (it is easier to approach twice as many prospects than to suddenly become twice as good a salesperson) so make sure the activity level is going up – not down! Companies get strung along into receivership because they can’t sell or can’t get the money in. Ultimately, make sure that the sales process is not reliant on the business owner – businesses are difficult to sell “if the business owner is perceived to be the business”.

2) Review your sales plan. There are only 4 ways to grow a business – (i) Growth by acquisition, (ii) Increase number of customers, (iii) Increase transaction values by selling more products & (iv) Increase frequency of sales. Make sure you understand your “unique selling points” and write them down – if you don’t understand them, how can your customers? Growth by acquisition can help speed up geographic expansion through acquiring an already established customer base, product lines & services but care needs to be given to potential cultural differences between two organisations, which may affect customer & employee retention.

3) Increasing sales/profit record. Aim to demonstrate consistency, preferably with increasing sales/profits, it will help strengthen your negotiating position, increasing value and one less reason to talk the price down. Remember that loss making businesses are difficult to sell – if possible, turn the business around first and then sell.

4) Develop a 3 year plan. Try to develop a realistic budget for the year ahead with a further two years of planning ahead, updated each year as part of your business plan. Ideally, you need to know where your future sales revenue and profits are coming from – likewise when you come to sell the business, the buyer will want to know that too!

5) Review the marketing plan. Marketing can be best summed up as “identifying and supplying a customer’s needs at a profit”. Treat marketing as an investment rather than a cost and work out how much you would be prepared to invest in order to gain a new customer. Review new markets for existing products or new products for existing markets (be wary of new products for new markets as this is where the greatest risk lies). Try, test and measure at least 10 different marketing methods to gain new enquiries and customers – cut out the ones that don’t work and invest heavily in the ones which do. Remember the 5 WAYS in which you can have an influence on:-

Number of Leads x Conversion Rate = Customers x Number of Transactions x Average Sale Value = Turnover x Profit Margin = Profit.

6) Review the Customer Base. If your business becomes reliant on any one customer, the risk goes up and the value goes down. Make sure the risk is spread, with no more than 20% reliance on any one customer. If possible, market products and services to a broad range of industry sectors eg Public & Private Sectors to reduce the effects of any down-turns. Also, try and cultivate customers who are prepared to agree to “rolling contracts” (eg maintenance & service contracts or retainers) so that sales can be achieved with less effort, whilst become more predictable – businesses with rolling contracts in place are more saleable for when the time comes to sell.

7) Review prices and margins. The more profit you generate, the more valuable your business will be. People think customers buy on price but they rarely do – only 10 to 15% of the public buy on price as what customers really want is value for money – the prouder the price, the better the deal! The most successful businesses are customer led; they don’t necessarily have the cheapest products. Put prices up if discounts are required. Pricing is key to profitability but often misunderstood – for a 30% Gross Margin business, if you reduce prices by 10% then you will need a 50% increase in sales just to stand still; a 10% increase in price, you would need a 25% drop in sales volume before you start losing out!

8) Review the Management Structure. Businesses are difficult to sell if the Business Owner “is the Business”. The 3 main roles are Make it (Ops), Sell it (Sales), Count it (Finance). Find ways of making sure the business is not reliant on the owner – look at the management team to see where additional responsibility can be taken on or consider employing someone to take on tasks to enable the business to become more “independent” of the owner rather than totally “dependent”. If the senior team is too small, consider taking on a non-executive Director or Consultant to benefit from their outside knowledge & experience and offer them as “continuity” when negotiating the business sale. Make sure Board meetings are held regularly with an Agenda and Minutes/Action Points recorded – don’t miss “future business development”.

9) Value your assets. The greatest asset in any business is People followed by Customers. But make sure you have “the right people, sitting in the right seats, before you start driving the bus” in the first place! Make sure everyone has a Contract of Employment and Job Description in place (these will come up in due diligence, when selling). Look after your key people – losing them at the time of selling a business will probably jeopardise the deal. Make sure that you are aware of the values of your tangible assets such as property, plant and equipment. A fixed asset register is often essential when discussing values with a buyer. Other assets include patents and intellectual property rights, which will all add value for when the time comes to sell.

10) Make sure your information is up to date. A well run and administered business will increase the perceived value and nothing puts off potential buyers off than lack of up to date information. This includes Statutory Accounts, Management Accounts, Order Book Values, Staff Contracts of Employment, Staff Handbook, HR records, Job Descriptions, Copies of Leases, Asset Lists, Business Awards/Certificates etc etc.

Maximising Business Value (Commencing the Sale Process)

1)  Make sure you really do want to sell! A serious prospective buyer will be interested in the reason behind you wanting to sell the business.  And if it’s not a compelling reason, they will probably go elsewhere. You need to think through the reasons for selling and how your life will be, once the business has been sold, so make sure your business plan is aligned with your personal aims and objectives. No buyer is going to want to waste time and money with business owners who don’t know whether or not they really want to sell, so understand the reasons why you want to sell and then make a definite decision. Selling a business is a team effort, not just between the buyer and seller but also between the professional bodies involved, often requiring a great deal of co-ordination in trying to agree time-scales, providing information, clarifying terms and driving the deal forward to Completion. You, not just the buyer, need to be fully motivated to make sure this happens!

2.  Make sure you check the background to your buyer. There could well be many people who think they want to buy your business but many of them could be just be looking out of idle curiosity or not even have the means to do the deal. There’s no point in going through all the hard work of agreeing terms and fine tuning the contract of sale if the funding can’t be secured before legal completion! Check out the credit worthiness of your buyer and don’t be afraid to ask for proof of funding – your business broker should be able to do this for you.

3.  Know how much your business is worth.  The business may be worth as much as someone is prepared to pay for it but this does not place you in a strong negotiating position.  Make sure you know how much you business is worth by taking out an independently prepared, professional business valuation report.  This will help you to understand whether or not it’s worthwhile trying to sell the business in the first place and enable you to substantiate the price you have in mind. Once you understand the price or value of your business, you may need to take tax advice to ensure that any potential deal is tax efficient. Remember, the books will be the books and whilst a Valuer can look at adjusted profit figures, don’t expect a buyer to pay for undisclosed business – if you can’t record it, you can’t pay for it!

4.  Make sure you know your numbers. Many business owners are interested in selling their businesses but struggle to know what the balance sheet is worth, let alone the turnover or profit figures. There is a balance between knowing basic information and giving the impression that you know almost everything that there is to know about the business, as you may end up being perceived to be the business. Don’t guess the figures and at the very least, make sure that you can get your hands on the information required and have summary sheets to hand. Another area which is good to know, is the likely level of business for the year ahead, three years, even better. Buyers are especially interested in the future business prospects and so it greatly helps to have a considered opinion, rather than second guess. False information will lead to uncertainty and reduce confidence in progressing the deal.

5. Identify and understand your USP’s.  Like any other sale, there are two main points for sales people to consider: “features” and “benefits”. In general, buyers are not really interested in how long you’ve been in business or what great customer service you provide – you should be doing that anyway! Buyers are only interested in “what’s in it for them”. Before selling your business, you need to place yourself in the buyer’s shoes and identify all the things that would create value for them because if you don’t fully understand them, how can you expect the buyer to know, as they will not appear on any set of accounts. Ideally, you need to write down all the things that make your business unique (ones which can be truly justified) and use them in the selling process to drive up the perceived value. Invariably, there will be weaknesses identified within your business but this is where a negative can be turned into a positive – the weakness could become a selling point as “an opportunity for future development”, where the buyer might be able to maximise future growth.

6. Find several potential buyers. In general, it is best to aim for 6 potential buyers as offers could be double that of others, simply because businesses have more perceived value for different reasons, to different buyers. Even if you do have just one buyer, there’s nothing wrong in letting on that there are other interested parties to create a competitive environment, otherwise it’s difficult to negotiate a higher price, if the buyer thinks they have total exclusivity, before talking to anyone else. When you do accept an offer and have to grant exclusivity for the due diligence exercise, ensure that this is limited (60 days is the norm), so if the buyer does try to re-negotiate the price down to an unacceptable level, you can get the business back on the market, rather be drawn into a long, drawn out battle. Remember, that deals can fall through for a variety of reasons (funding being one of them), so if you can have other potential buyers on hand, you will stand a better chance of finally selling. Even before you decide to sell, record all unsolicited approaches – they may become useful one day.

7.  Don’t accept the first offer! If you are interested in securing the full or fair value for your business, it is always worthwhile declining the first offer, as people often want what they can’t have and if the buyer wants the business badly enough, they will soon be back with a revised, better offer. When advertising businesses for sale, it is always advisable not to give an asking price or a guide price and never disclose your bottom line price as this will be limiting offers to that level. Always best to invite “indicative offers”. NB Many business owners, do have unrealistic expectations about the price or value of their business, so again, put yourself in a buyer’s position and ask yourself, how much would you pay?

8.  Market the business for sale. Apart from having to be pro-active in marketing or advertising your business for sale, nothing puts a buyer off more than lack of information, once they have shown some interest. Ideally, the best initial document to provide is a Sale Memorandum or Information Memorandum (known as the IM), which will provide a good overview and background to the business, without giving away sensitive or highly confidential information.  Invariably, it will provide key financial figures and highlight many or all of the unique features about your business and list the opportunities for future business development. Make sure that you read and re-read the document to ensure that it is a factual and true description of your business, as false claims or statements will eventually be found out and undermine any potential deal. As business is done between people, the main objective is to provide just sufficient information in order to meet the buyer face to face. Prior to providing the IM document, a Confidentiality Agreement or Non-Disclosure Agreement (known as an NDA) should be put in place, as this will help ensure that everything can be kept as confidential as possible, without the risk of it being made public to your customers, suppliers and staff.

9. Be prepared to negotiate. Whilst there are deals where all the cash is paid up front, don’t assume that this will be the case with your business. Place yourself in the buyer’s shoes and start to realise that there may be an element of risk to be covered, finance to be considered, hand-over period to be agreed etc. A premium may be agreed if the business is funding the take-over, so best to keep an open mind on how the deal can be structured. Understand that there is a big difference between “deferred payments” and “earn-outs”. Deferred payments may have some form of security agreed, whereas earn-outs may be linked to the future profitability of the business, where you may have little or no control.

10.  Make use of Professional Advisors. No one likes to spend money unless they have to but with the careful appointment of professional advisors, they can actually save you a great deal of money. For instance, a Broker can help find you suitable buyers through their connections and lists of potential buyers and investors to place you in a competitive bidding situation; a specialist Corporate Lawyer will help protect you from unfair or onerous terms within the contract of sale; a Tax Accountant can help advise on the best ways to minimise your tax liabilities (before the sale completes) and a Corporate Financial Adviser can help make sure you are getting the right advice on when to sell and how to maximise shareholder value. Make sure that your advisors have the capability of meeting your requirements, can work to an agreed budget and work within your agreed time-scale.

Looking to sell your business? For further information, help and advice, please fill in the form below:-

New Business Planning Service

“The 3% of people with written business plans earn more than the other 97% added together!”

Whether or not you are wanting to sell a business, it is fairly well known that those business owners with a written business plan are far more successful than those who don’t. There’s one story that goes along the lines that a man was riding a galloping horse; when passing by someone, they shouted out “where are you going?!”  The reply from the person riding the horse: “I don’t know, ask the horse!” Most people (not just business owners) have no idea where they are actually heading in life, most have some rough idea in their head but leave everything to chance on how to get there. Others really do leave things to chance often saying “when I win the lottery…..!” and carry on with the same old habits.  And then there’s that quote from Henry Ford:-

“If you always do what you’ve always done, you’ll always get what you’ve always got.”

Of course, producing a written plan that is realistic and achievable, with action plans that are SMART (specific, measurable, accountable and time-measured) are not always easy to prepare, when it’s your own life or business that you’re trying to plan out. It’s far easier to be objective telling or suggesting to someone else what they should be doing! Many business owners for instance, like the thought of selling their business but have given very little thought to what they might do, once the business has been sold. Many deals have crashed, not just because the sale process wasn’t properly planned out in the first place or because the business owner decided to take tax advice right at the last moment. The business owner often pulls out of the deal when it has suddenly dawned on them that they’re going to give up everything they’ve developed over several decades and have no idea what to do with themselves once the keys have been handed over. No wonder one prominent business broker states that their commission must be paid in full, if the business owner pulls out of the deal, once Heads of Terms have been signed!

It’s easy to realise that everyone should really have a written plan of where they want to be and a good understanding of how they are going to get there. A written plan focusses the mind and assuming the plan is not put away in a drawer, it will remind us of all the action we need to take in order to reach whatever it is we want to achieve. With business planning, it is important that the business owner aligns their personal aims and objectives with the business, otherwise you may end up with the business dictating how you run your life and nothing much more. There’s plenty of business owners who end up sacrificing their “health for wealth” before they realise that they need to sacrifice some “wealth for health”. Unfortunately, many leave it too late.

The good news is that we can help! Our business planning expert is able to talk you through all the questions that you need to be asked and produce that all important written business plan – aligned with your own personal aims and objectives. You can get started now, by completing the form below:-

 

Avoiding mistakes Selling a Business

Research has shown that many business owners fail to achieve the full or fair value of their businesses when trying to exit, simply through poor planning and preparation. It’s not your fault if you’re making some of these mistakes but hopefully, there’s still enough time to learn from the experience of others……

You’ve had enough and so you’ve suddenly decided to sell?  The decision to sell a business should not be taken lightly as there could be many things to be done to try and make the chance of selling a business a lot easier.  Poor preparation without up to date accounts, legal entity records and other important paperwork will simply put potential buyers off.  Don’t think you can hide bad news or skeletons in the cupboard as these usually get discovered in the due diligence process – deal with the issues before you decide to sell. Struggling businesses with unrealistic financial forecasts are difficult to sell too.  Buyers often string loss making businesses into receivership so always work to a realistic time scale (it can take up to six months to find a buyer and six months to sell a business) – turn a business around first and then sell.

You are perceived to be the business?  Many owner-managed businesses are very successful and highly profitable, because the owner has “run a tight ship” and controlled everything down to the last penny. Which is great for maximising personal income, surviving recessions and avoiding management issues. The trouble is, when the time comes to sell, a buyer may well perceive “the owner to be the business” and once gone, the business will be gone too. And the Higher the Risk, the Lower the Value! If the business owner can plan in advance, delegate or take on someone who can manage the day to day business without relying on the owner, then the business will be a lot more saleable and more valuable.

You just have one or two major customers?  Just because you have  developed an excellent long term relationship with one or two key customers, it doesn’t mean that the buyer will! Ideally, turnover should be spread amongst the top ten customers but should the business becomes reliant on customers producing 20% or more of the business, then the element of risk comes into play, driving down perceived value. If the business is reliant on one or two key customers, a contract or rolling contract may help. Some buyers walk away from deals if they discover that the business is just too reliant on too few customers. The same could be said where key suppliers are concerned.

You’re not sure if you really do want to sell? A serious prospective buyer will be interested in the reason behind you wanting to sell the business.  And if it’s not a compelling reason, they will probably go elsewhere. You need to think through the reasons for selling and how your life will be, once the business has been sold. No buyer is going to want to waste time and money with business owners who don’t know whether or not they really want to sell, so understand the reasons why you want to sell and then make a definite decision. Selling a business is a team effort, not just between the buyer and seller but also between the professional bodies involved, often requiring a great deal of co-ordination in trying to agree time-scales, providing information, clarifying terms and driving the deal forward to Completion. You, not just the buyer, need to be fully motivated to make sure this happens!

You haven’t checked the background to your buyer? There could well be many people who think they want to buy your business but many of them could be just be looking out of idle curiosity or not even have the means to do the deal. There’s no point in going through all the hard work of agreeing terms and fine tuning the contract of sale if the funding can’t be secured before legal completion! Check out the credit worthiness of your buyer and don’t be afraid to ask for proof of funding – your business broker should be able to do this for you.

You are guessing how much your business is worth?  The business may be worth as much as someone is prepared to pay for it but this does not place you in a strong negotiating position.  Make sure you know how much you business is worth by taking out an independently prepared, professional business valuation.  This will help you to understand whether or not it’s worthwhile trying to sell the business in the first place and enable you to substantiate the price you have in mind. Once you understand the price or value of your business, you may need to take tax advice to ensure that any potential deal is tax efficient. Remember, the books will be the books and whilst a Valuer can look at adjusted profit figures, don’t expect a buyer to pay for undisclosed business – if you can’t record it, you can’t pay for it!

You’re going to obtain a free of charge valuation from a broker?  Many brokers have a vested interest in providing you with a free valuation in the hope that you will sign up with them.  Valuations usually take a great deal of time and thought so be wary of quick guesses, followed by undue pressure to “sign up”.  Very often values have been greatly enhanced so you feel compelled to pay high up front fees as the business value has probably doubled your expectations and enthusiasm to sell.  Once you have paid the up front fees and nothing much as happened you may begin to realise that the business value was not worth the paper it was written on (assuming it was written out in the first place)!

You don’t know your numbers? Many business owners are interested in selling their businesses but struggle to know what the balance sheet is worth, let alone the turnover or profit figures. There is a balance between knowing basic information and giving the impression that you know almost everything that there is to know about the business, as you may end up being perceived to be the business. Don’t guess the figures and at the very least, make sure that you can get your hands on the information required and have summary sheets to hand. Another area which is good to know, is the likely level of business for the year ahead, three years, even better. Buyers are especially interested in the future business prospects and so it greatly helps to have a considered opinion, rather than second guess. False information will lead to uncertainty and reduce confidence in progressing the deal.

You haven’t identified your USP’s?  Like any other sale, there are two main points for sales people to consider: “features” and “benefits”. In general, buyers are not really interested in how long you’ve been in business or what great customer service you provide – you should be doing that anyway! Buyers are only interested in “what’s in it for them”. Before selling your business, you need to place yourself in the buyer’s shoes and identify all the things that would create value for them because if you don’t fully understand them, how can you expect the buyer to know, as they will not appear on any set of accounts.  Ideally, you need to write down all the things that make your business unique (ones which can be truly justified) and use them in the selling process to drive up the perceived value. Invariably, there will be weaknesses identified within your business but this is where a negative can be turned into a positive – the weakness could become a selling point as “an opportunity for future development”, where the buyer might be able to maximise future growth.

You are only going to deal with one buyer? In general, it is best to aim for 6 potential buyers as offers could be double that of others, simply because businesses have more perceived value for different reasons, to different buyers. Even if you do have just one buyer, there’s nothing wrong in letting on that there are other interested parties to create a competitive environment, otherwise it’s difficult to negotiate a higher price, if the buyer thinks they have total exclusivity, before talking to anyone else. When you do accept an offer and have to grant exclusivity for the due diligence exercise, ensure that this is limited (60 days is the norm), so if the buyer does try to re-negotiate the price down to an unacceptable level, you can get the business back on the market, rather be drawn into a long, drawn out battle. Remember, that deals can fall through for a variety of reasons (funding being one of them), so if you can have other potential buyers on hand, you will stand a better chance of finally selling. Even before you decide to sell, record all unsolicited approaches – they may become useful one day.

You are going to accept the first offer? If you are interested in securing the full or fair value for your business, it is always worthwhile declining the first offer, as people often want what they can’t have and if the buyer wants the business badly enough, they will soon be back with a revised, better offer. When advertising businesses for sale, it is always advisable not to give an asking price or a guide price and never disclose your bottom line price as this will be limiting offers to that level. Always best to invite “indicative offers”. Many business owners, do have unrealistic expectations about the price or value of their business, so again, put yourself in a buyer’s position and ask yourself, how much would you pay?

You don’t have any marketing material? Apart from having to be pro-active in marketing or advertising your business for sale, nothing puts a buyer off more than lack of information, once they have shown some interest. Ideally, the best initial document to provide is a Sale Memorandum or Information Memorandum (known as the IM), which will provide a good overview and background to the business, without giving away sensitive or highly confidential information.  Invariably, it will provide key financial figures and highlight many or all of the unique features about your business and list the opportunities for future business development. Make sure that you read and re-read the document to ensure that it is a factual and true description of your business, as false claims or statements will eventually be found out and undermine any potential deal. As business is done between people, the main objective is to provide just sufficient information in order to meet the buyer face to face. Prior to providing the IM document, a Confidentiality Agreement or Non-Disclosure Agreement (known as an NDA) should be put in place, as this will help ensure that everything can be kept as confidential as possible, without the risk of it being made public to your customers, suppliers and staff.

You’re expecting all the cash up front? Whilst there are deals where all the cash is paid up front, don’t assume that this will be the case with your business. Place yourself in the buyer’s shoes and start to realise that there may be an element of risk to be covered, finance to be considered, hand-over period to be agreed etc. A premium may be agreed if the business is funding the take-over, so best to keep an open mind on how the deal can be structured. Understand that there is a big difference between “deferred payments” and “earn-outs”. Deferred payments may have some form of security agreed, whereas earn-outs may be linked to the future profitability of the business, where you may have little or no control.

You’re going to pay extortionate up-front fees to a Broker?  OK some business brokers charge high (or very high) up-front fees in return for a high level of service, for high value businesses, that’s not disputed. But at least check out why you are going to pay thousands or even tens of thousands of pounds to a broker to have the privilege of selling your business. Just be wary about false promises and unrealistic values.  Some brokers may “feed off the business owner’s greed” so watch out! Ask for references.

You’re going to sell your business with a Broker on a “no win, no fee” basis?  Sounds a sensible agreement but why?  Check out the Terms and Conditions as they may be lots of small print to understand.  In particular, when you’ve decided that you’ve had enough and want to take the business off the market or use a different Broker, you might end up with some high cancellation fees – a few Brokers seem to be geared up for litigation, so beware! In the worst cases, you may be liable for fees, even if you changed the Shareholders or Directors without the broker selling! Google the broker’s name followed by “complaints” and see what you find…..!”

You’re impressed with the Broker who came to visit you?  Nothing quite wrong here but check out who is responsible for selling your business.  Some people may be there just to “sign you up” and so you’ll never see them again!  Find out exactly who is responsible for selling your business – “deal teams” often have changing staff. Which is all a bit of a problem when you want to see someone to discuss the progress (or lack of!)  being made with potential buyers. Watch out for slick reports and presentations too – they may impress but could be full of mistakes – if you bother to look closely!

You’re not going to use Professional Advisors? No one likes to spend money unless they have to but with the careful appointment of  professional advisors, they can actually save you a great deal of money. For instance, a Broker can help find you suitable buyers through their connections and lists of potential buyers and investors to place you in a competitive bidding situation; a specialist Corporate Lawyer will help protect you from unfair or onerous terms within the contract of sale; a Tax Accountant can help advise on the best ways to minimise your tax liabilities (before the sale completes) and a Corporate Financial Adviser can help make sure you are getting the right advice on when to sell and how to maximise shareholder value. Make sure that your advisors have the capability of meeting your requirements, can work to an agreed budget and work within your agreed timescale.

Always remember – Plan to sell your business – “If you fail to plan, you plan to fail!”

**********

Next step:  find out why you should consider Stirling to sell your business, by clicking here.

Business Valuations using Price/Earnings (P/E) Ratios

Multiples of net earnings or P/E ratios are used to value companies with an established profitable history. The Price/Earnings (P/E) Ratio represents the value of the business divided by its post tax profits. For example, if a company was making post-tax profits of £200,000 and you were offered £1,000,000 for it, that would equate to a P/E ratio of 5 (£1,000,000/£200,000). Quoted companies generally have a higher P/E ratio where, for example, a typical P/E ratio for a large growing quoted company with excellent prospects may well be in the region of 10 to 20. Quoted company shares are much easier to buy and sell and are perceived as being less risky than unquoted companies, which makes them more attractive to investors than shares in comparable unquoted companies. Furthermore, typically, the P/E ratio of a small unquoted company can be up to an average of 50% lower than that of a comparable quoted company in the same industry sector, the amount of discount depending on any perceived trading risk. Generally, the higher the risk – the greater the discount. A 50% discount would infer an average level of risk whilst a 60% discount would infer an above average risk element for a potential buyer to give consideration to. However, any unrecorded intangible assets present within the business, may possibly improve the valuation further.

In order to arrive at a meaningful post-tax profit figure, it will be necessary for certain adjustments to be made, which are known as “Normalising Adjustments”.  The Valuer will need to scrutinise the accounts in order to establish if there were any income or expense items that were considered to be either of an extraordinary or non-recurring nature or higher than would be reasonably expected.  Checks for instance, should be made on both the level and sources of income received, together with the itemised schedules of cost of sales and administration expenses in the financial information submitted. From these, the Valuer would make the “Normalising Adjustments” typically adding back Directors Remuneration, Medical Care, Bank Charges etc before deducting nominal Directors Salary, normalised Bank Charges, Depreciation etc before a nominal Corporation Tax charge is applied, in order to arrive at an adjusted “Maintainable  Post Tax Net Profit”, to which the P/E multiplier can then be applied.

To give an example of an (unquoted) company valuation, a business trading within the UK Industrial Engineering Sector where quoted companies on the Financial Times FTSE 100, 250 and AIM markets delivering broadly similar services to the business, could be trading with an overall Sector P/E ratio of say 19.27 as at the time of preparing the report. As a smaller unquoted company, the P/E ratio for would be around 9.6 based on the figures as stated in the Financial Times FTSE tables having deducted an appropriate discount of 50%. For smaller SME businesses, it may be necessary to research similar businesses sold to determine a more realistic multiple. This may then be adjusted take account of any unrecorded intangible assets such as:- 

  • The current value placed on any UK and European trade names or patents and trade-marks etc.
  • Any customer and supplier goodwill that has been built up over the many trading years together with any key business relationships
  • Niche market placement

If the multiple of net earnings method for valuing a business is applied in this situation, the valuation of the Company would be based on an adjusted, maintainable annual post tax net profit figure. If for instance a figure of £225,000 were to be the average of the last reported post tax post tax net profits over the last three three financial periods, by applying a P/E multiple of 9.6 would provide a valuation of £2,160,000 at the time of the report, assuming that the out-turn for the current trading year at least matches or exceeds the forecast results reported earlier. If the current year’s results turn out to be better than the current trading position, then the level of on-going maintainable post tax net profits used in the valuation computation would be higher. Very often, although it may be possible to value a business “on paper” other factors may affect the final outcome such as:-

  • The perceived potential loss of a key member of staff which could have an impact on the future direction of the Company and its financial performance. Any potential buyer may wish to negotiate some form of handover or continuity with key staff to ensure a smooth transmission into new ownership.
  • The loss of any key sales accounts following the transfer of ownership may well be perceived as having an effect on the future trading position of the Company. Any potential buyer may want some form of assurance regarding continuity with the key account clients. If the Company was to be put up for sale, a potential buyer may be keen to have some guarantee as to the future trading position.
  • The transaction values and multiples of similar sized businesses sold.

The advantage of the Price/Earnings valuation technique is that the value can be directly related to other businesses trading within the same industry sector and that the method takes into account the profitability of the business, generated from the assets and investment made within the business, as recorded on the balance sheet. It should be noted however, that where businesses have “surplus cash” over and above the amount required for Working Capital that this will not normally form part of the Valuation.  Surplus cash would need to be dealt with separately if the business is due to be sold or at least sold with “cash for cash” added to any offer. The Price/Earnings valuation method is not suitable for businesses with a high value balance sheet and low profits.

For an independent, professional business valuation report, please leave your details below and we’ll take care of the rest and send a FREE sample valuation report:-