Selling your business should be simple if you have plenty of interest generated when you announce your plans, but it seldom turns out that way, especially if you attract too many to cope with in one go. Of course, the other problem can occur, too – when you don’t generate any interest at all!
Either way, when a suitable buyer is found selling the business will probably be unlike any other deal you will do in your career. Particularly for owners who are looking to retire, or who need to sell up due to ill health, getting the right deal with the right person is just as important – more, really – than achieving the best price.
Of course, there is nothing to say that those two factors don’t coincide, but to save you hours of potential anguish – not to mentioned wasted time – it is essential that when you do attract potential buyers that they are properly vetted.
Without such a qualification process, it is entirely possible that you will be lead up blind alleys and your business could even suffer as a result of these sort of unwanted distractions. In the worst cases, dealing with a potential buyer who turns out to be a no-go could mean you miss out on really good buyer who fulfils all of your selling criteria.
When you have one or more potential buyers who are standing out from the rest of the field, you may think that you are in pole position. However, before you seriously consider shaking hands on a sale deal, you ought to have gone through the following qualification process. It can all avoid a lot of problems – and lawyer’s bills – further down the line.
Before you start getting into the nitty-gritty of a business sale, it is essential that you know who you are dealing with. When dealing with an enquiry at the first stage, ask yourself whether the person concerned could be a competitor trying to get information about your business-sensitive operations. Never hand over data and management accounts with a background check that lets you know that the individual concerned is bona fide.
Sometimes, it will be necessary to establish the identity of the person you are talking to. Therefore, don’t worry about asking for proof of ID, such as a bank statement, passport or a letter from HMRC. Be prepared to pay for a credit check to be made against the person concerned so that you immediately know of any potential problems they might have raised the necessary funds to buy your company. If they have County Court Judgements against them, then this can be a warning sign. In addition, confirm their business is legitimate – if they currently operate one – with a check at Companies House. It is also worth doing the same for any business partners that they might be associated with.
Ask around the local business community for some views of their reputation. Chambers of Commerce are a good place to start and this will help you get an idea of their standing. If you have any doubts, then ask the potential buyer for references. This can be an especially good tip for anyone without a background in running firms. The whole process of looking into a potential buyer’s background will help you to feel more confident when it comes to the next stages. Ultimately, you want to establish in your own mind that the person you are dealing with is honourable as well as viable before proceeding.
Many business owners want to sell their business and see it go on and grow, especially if they have employees who have become trusted members of the team. Of course, not all buyers want to build your brand in the way you did and simply want access to your customer records, market share or patents.
Before you think about whatever valuation they have put on your business, consider what they might do with your business after you are no longer in control. A frank discussion about this with the client is usually most revealing in this regard. Don’t get too far down the line before you choose to pull out of the sale because you don’t like the client’s ultimate intentions.
Keep your important data to yourself at the initial stages. Only after a potential buyer has signed a non-disclosure agreement (NDA) should you let them see your balance sheet and sales ledger, let alone any sensitive customer records. NDAs ought to be standard practice in today’s business environment, but all too often sellers of firms fail to insist upon them. If a potential buyer is not keen to sign one, then you should feel justified in moving on to someone who will.
Signing an NDA is slightly different if you are looking to sell your business to an employee who already has access to your company accounts. However, you may want to keep the fact that you are selling up quiet for the short term and an NDA can help with this, particularly in cases where you are exploring the potential of a management buyout.
Remember that professional advice is always a good idea when drawing up an NDA. Without legal training, if you do it yourself, the document could well be full of loopholes and not worth the paper it is written on.
If your potential buyer turns out to have a good background, the necessary means to buy your business, the right sort of intent which you are happy with and has signed an NDA, you are in a position to start talking about potential sale prices.
Negotiating your price will depend on both parties’ perception of the business valuation being in the same area, but the period of negotiation should not be allowed to run on and on indefinitely. An independent valuation can often help to overcome differences of agreement, but buyers who are consistently low in their valuation should be discarded as part of the qualification process no matter how well they satisfy the other vetting criteria.
Another final thing to bear in mind during the negotiation period is when you are looking for a clear break and to move on from the business. Any potential buyers who are looking for you to remain involved in an advisory capacity should be dropped. Likewise, a buyer seeking an earn-out clause in the sale terms will mean that you end up taking an ongoing interest in the firm’s affairs, maybe for years to come. If you want to get out in the short-term, these buyers are best vetted out sooner rather than later.
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In the early stages of such an important undertaking, it can be a bit of a moral maze: who do you trust?
Firm Gains gave me confidence with detailed advice and support. I would recommend their services to other entrepreneurs seeking to buy a business.Mr T Washington , Founder
I found it much easier to get my head around a business sale this way than talking to my accountant. You speak a language I understand!
Even though the whole process of selling seems daunting, I’ve got more confidence that I’m heading in the right direction.Mrs T Boothe , Founder
Thank you for your email and the excellent advice provided earlier this week. It was immensely helpful and has helped me to plan my future direction for the practice.
I would have no problem whatsoever in recommending your services in the future.Mr & Mrs Halldron , Co-Owners
Firm Gains were recommended to me and I was not disappointed. They were efficient, helpful and effective responding quickly to my request with all the facts that were needed to ensure a stress-free dialogue with our buyer.
What really helped was the advice over and above the valuation, which was immensely valuable and gave me the confidence to proceed. I would not hesitate in recommending them.Mr C Waite , Founder
We found the advice invaluable, which was clear and concise and felt your firm had a good handle on market trends and business sectors.
With also the backup of the secondary services, there was a feeling you had all bases covered if we wanted to proceed with our exit via Management Buy Out (‘MBO’).Mr D Wills , Director
Thank you for your advice. I was just about to sign up to the wrong kind of business agent for a company of our size, but read your post just in time.
I found a more serious partner, with experience in our industry and we’re already using the same language.Mr F Summerscale , Managing Director
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Firm gains understood our situation quickly and clearly and were anything but ‘pushy’. Refreshing compared to what we’d experienced before.Mr C Hutcheson , Managing Director