How to sell your business without getting into ‘Dire Straights’

Mark Knopfler from the rock band Dire Straits sang in the song “Scaffolders Wives”, “Don’t Begrudge Her The Merc, Its Been Nothing But Work, Losing her looks over the company books” isn’t as far off from the truth as some would imagine for many small business owners who spend years building up successful businesses before they finally decide to sell. Getting the best price is essential.

Having spent some of the best years of your life building your business and having been hard at it for ten, fifteen or twenty years you really want to get the best price so that you can slow down or may be do something different.

You have been successful and after some tough years at the beginning things settled down and your entrepreneurial spirit and hard work gave you a very good standard of living, not without its ups and downs for sure but nonetheless you’re quite rightly proud of what you created but now feel that is time to hand over to someone else while you take it easier.

All businesspeople reach this stage with an enterprise at some point in their lives and almost all think that selling is the thing to do.

There are other options such as finding a CEO or general manager instead. This allows you to still earn a shareholders/owners profit without the day to day grind of hands on management.

Clearly you won’t be able to take what you did when you managed the business yourself but it does allow you the option of keeping the equity for a few more years while being paid dividends and definitely needs detailed consideration before going headlong into a disposal.

I have always hated selling my businesses and prefer to bring in partners to run them when I move onto the next enterprise or idea. I just hate losing the cash flow and seeing it accrue in someone else’s bank account so I keep the equity and most of the cashflow!

This said though we do buy and sell businesses regularly and invest in ideas and concepts so perhaps it’s worth looking at what a buyer is looking for first because this is fundamental to whether you sell your business for the top price or not, and being blunt, whether you can sell it at all. Some businesses take years to sell, usually because the owners and perhaps their agents didn’t prepare the business for sale properly.

Firstly I always look closely at the matter of buyer financing because without it your buyer cannot proceed however much he or she loves your business. Cash buyers are few and far between and as many of you will have found the World is full of messers! It’s not even that they intend to be messers it’s just that they have fanciful ideas of their ability to fund the purchase of something that has provided a good living for you and your family and may well have paid school fee’s for your kids and provided funds to buy that house in Spain/Portugal, or even the States.
So what do you do? How do you separate real buyers from hopefuls?
It is essential that you ascertain very quickly whether they are people with a real chance of funding the purchase or not because abortive sales are costly, not only because of solicitors and accountants fee’s but because of the time that you and/or your staff will inevitably spend with the potential buyer during the due diligence period.

I use the following to help me decide whether it’s worth spending time with a potential buyer. Google them! Surprising what you find.

Next ask the business agent or BTA (business transfer agent) if there is one to ask some searching questions such as, do you have a business to sell? How long have you owned that business? Do you run it yourself or is it run under management? Is it in the same sector as the business you are attempting to buy? Ask if they ever worked in your sector before, and in what capacity, owner or employee? How long have they been in business regardless of sector? How old are they? (this is very important because if they are sixty and your business requires 15 hour days it is unlikely they have thought it through and may well back out when they have, leaving you with a big legal bill!).

Now you must find out the answer to the daddy of all questions! How will you be funding this purchase? Be wary of answers that aren’t direct and full. Answers such as “oh cash” are not good enough for you to set aside maybe three months of your valuable time while they mess around with poorly thought out due diligence! “Oh’ cash” is a fob off and is almost never true.

Another answer to be wary of is “we have our funding arranged through such and such a bank! Insist on details early on if you want to avoid disappointment.

Be aware right from the beginning that every time a sale is aborted it could cost two, three or even four thousand pounds in legal fees, and that is for a small business! Only last year a friend of mine spent over £100,000 on abortive legal fees when he tried to sell his £12M turn over bakery business to people that wasted months of his time and that of his staff. Don’t fall into this trap insist on answers and if you don’t get them do not take the interest seriously, remember you want to sell, not be messed around for months on end while your business deteriorates due to your time being taken up with dreamers.

Make sure you do your due diligence on any potential buyers before you start spending money on legal fees not after, that’s the best tip I can give you and one you should keep in mind at all times.