Walking off into the sunset...

9th of June 2017
Walking off into the sunset...

Thinking about selling your small business and retiring? Well, don’t book that world cruise just yet…there’s much to think about and do before you go sailing off into the sunset, writes Hartley Milner.

You will have put much time, toil and tears into building up your business, so you will expect a handsome payback on your investment when you are ready call it a day. Only you will know when that time has come. But if you find yourself serially staring out of your office window daydreaming about the many things you said you would love to do one day but had put off and focusing less and less on your business, then the chances are you have already made your mind up.

So now the long hard slog to gainful unemployment can get under way.

“Typically, the first emotions business owners experience at this time range from relief and elation to apprehension and sense of impending loss,” said retirement adviser Rob Searle. “Of course, the decision to retire from a company you built up and put your heart and soul into isn’t an easy one. But everyone needs to let go at some point, and one of the first things you will need to decide is do you handle the sale yourself or put it in the hands of a broker.

“The DIY route saves money by avoiding fees and commission. It is also the best option when selling to a family member or if it’s a management/employee buyout. A broker’s fee can be as much as 15 per cent of the selling price, and then you have accountancy and corporate financial advice fees to include. But a broker can help free you to keep the business up and running, keep the sale quiet and get the highest price for you (and for themselves). And this route may be more appropriate for larger or more tech-led businesses.”

Technology and greater transparency has transformed the brokerage market, making it easier for business owners to achieve a low cost DIY exit, if you follow some largely intuitive advice and make use of social media.

Preparation is key. Prepare properly in advance of going to market and you dramatically increase the chance of a deal and of achieving a decent price. Go to market too early and you increase reasons not to buy and risk the deal collapsing further down the line.

Do your preparation

Prepare up-to-date accounts with the aim of selling at or soon after year-end, tidy up leases, contracts and legals, settle litigation and employee disputes, improve cash flow (reduce employee expenses), reduce your own take from the company, liaise with professional advisers to find the best deal/tax structure and give the business a general makeover.

Avoid pre-sale valuations. For smaller businesses, these are often a distraction and can distort seller price expectations against the market reality. Value is driven and cemented by good preparation and canny marketing. Concentrate on both.

Prepare a single sheet market ‘teaser’ with headline information about your business for circulation to potential buyers and advertisers. It should contain:

Potential buyers

What you do and where you do it, what sets you apart from competitors (location, customers, contracts), potential for growth, reason for sale, headline financial information such as turnover, gross profit and earnings before interest, taxes and amortisation, plus contact details. Perhaps create a unique yahoo email address to maintain initial anonymity.

Seek as many potential buyers as possible using ‘business for sale’ websites, existing contacts (competitors, customers, suppliers), do your market research to find out who is buying, advising, commentating, research potential buyers and send your profile. Make the most of Twitter, Facebook, Google+, Linkedin, local publications/business networks and Google Adwords.

Leakage about the sale of your business can be unsettling to stakeholders, your employees, customers and suppliers. To be on the safe side, provide buyers with an NDA (Non-Disclosure Agreement) and request they sign before you release detailed information. No genuine buyer will refuse. There are lots of NDAs available online.

Respond promptly to buyer enquiries with an emailed copy of your headline profile and, if required, an NDA. Within your response, request information about why they are interested in your business, where they are based and how long have they been looking, what are their current circumstances and experience of your sector and how will they fund a purchase.

Winkle out time wasters. Research buyers at official record offices, industry associations and review sites such as glassdoor.com/Reviews and whataretheyreallylike.com, as well as checking out their website. Strike up a relationship based on mutual respect and understanding early with an initial meeting in person or via Skype.

Open and patient

If asked for a CIM (confidential information memorandum), save your pennies by providing an expanded version of your headline profile, perhaps giving a personal insight into what you would do if buying the business. This will create a more valuable sales tool than commissioning a report that can turn out to be turgid and over-embellished.

Always be open, communicative and patient when negotiating a deal. Avoid inflexibility on price and terms and take care not to overestimate and/or underestimate your business’s value. You may wonder how without a valuation do you know if the price being offered is acceptable. By this stage, however, you should have a better view of how the market values your business and an idea about the price you may be willing to accept.

Can you pick and choose a buyer? If you turn down one, will another emerge? Is there enough goodwill to work out a solution? Can you create a deal structure that enables you to bridge a price gap, perhaps some cash now and some later? You may find yourself in the happy situation where you are inundated with offers, so can you create an auction process?

Ultimately, getting any offer is great news and should not be dismissed lightly. Be as flexible as possible – even if your instinct says turn it down. Understand the reasoning behind the offer, and if the gap is unbridgeable ask what you can do to help address and alleviate the buyer’s concerns.

Once you’ve agreed a price/deal, make sure the buyer confirms everything in writing via ‘heads of terms’. This is not a legally binding document but provides both sides with clarity about what’s been agreed and becomes the deal template to take forward into due diligence and the sale & purchase agreement. So it is important to get it right.

You are now at the due diligence stage – the most difficult and stressful part of the process with everything still to play for. As the buyer or their advisers begin to ferret around in the business, they might use this opportunity to chip away at the price or even consider withdrawing. Your housekeeping should have left no messy corners where their snooping may reveal issues that could potentially scupper any deal.

One such area relates to leasehold properties – check that any deal struck is not held up much to everyone’s frustration because the landlord is unavailable, or even unwilling, to give their consent or is looking to convert the offices into flats when the lease comes up to renewal.

Once satisfied all is well, you can download a sale & purchase agreement, which is ideal for a small asset sale. For larger and/or share sales, it is advisable to get a solicitor on board to handle the legals ensuring, of course, that they are amply qualified and experienced to take the deal to completion.

These are all steps you can take yourself, but if you feel you are getting out of your depth at anytime during the sale process do not risk everything by hesitating to seek expert advice.

Continued involvement?

“As an alternative to selling the entire business, you may wish to keep a small stake in it, perhaps in the form of a shareholding, or the buyer may request that you make yourself available in a consultancy role when and as needed,” Searle said. “Your continued involvement can give the business continuity and the buyer confidence that it will still do well… while providing you with an income.

“If you opt to make a clean break with the company, you will need to decide how you want to receive payment. When the sale is complete, you can ask for payment in full or in instalments. The buyer may well prefer to pay in instalments, but then you will be at risk if, for example, the buyer cannot make future payments. Some buyers want to make a series of payments based on profits, in which case you may be contracted to stay with the business for a period of time often known as an ‘earn out’. Your choices can affect whether buyers are interested and how much they are prepared to offer, and can affect the tax treatment of the sale. But as a retiree, you are more likely to want to take your money all at once and disappear.”

Now you can book that cruise. Bon voyage!


Our Partners

  • ISSA Interclean
  • EFCI
  • EU-nited