3 POTHOLES TO AVOID WHEN SELLING YOUR BUSINESS

I read somewhere a little while ago that around 15 – 20% of UK business owner/managers are looking to sell their business at any one time which could be you if you are reading this.

There are many twists and turns and ups and downs on the road of selling your business and over the years we have, from experience, discovered a number of ‘potholes’ which can easily interrupt, slow down and even halt the process entirely. According to www.potholes.co.uk potholes are a major factor in causing axle and suspension failure, which costs British motorists an estimated £2.8 billion every year. So they can and do cost money and create real frustration and that is exactly what they do in the selling process. While there are more I have chosen 3 potholes we have encountered in our experience.  Here they are:

1. Giving minimum preparation to an exit

In an ideal world it is best to have a clear exit strategy and preparation for a sale begin 2-3 years in advance of a completion.

In all honesty, in the real world this rarely happens and many owner managers have a wake-up call of some kind be it their health, stage of life, or unpredicted personal circumstances which forces a speedy decision to put their business up for sale. Once they have decided it is time to sell they start looking for an offer they have constructed in their heads before thinking about what happens next. In our experience this failing to plan and prepare in is a real pothole.

Why is it a pothole? Well, with minimum preparation when a potential buyer begins to put the spotlight on the business for sale, more often than not, things appear which can trigger a dilution of confidence in the buyer which can lead to a reduction in what is offered. When this due diligence process is underway you can be sure that time and money will have already been spent and it is not uncommon for the seller to feel that they are beyond the point of no return and therefore accept a lesser sale price than what was first envisaged. There have been occasions when the buyer’s spotlight has shown up something which is totally unacceptable and consequently pulls out of the process entirely.

So it is always best to know that lack of planning and preparation can be a real pothole and that it can be avoided with good planning and preparation.

2. Thinking it is a DIY (Do It Yourself) process

Most owner managers are so used to being in control doing most things for their business that they can perceive that selling their business is something they can easily do themselves as they know it best and believe that somewhere in their network they can do a deal.

To be fair, they do know it best however whatever the size or nature of the business, selling it can get complicated and does suck up so much of an owner/managers time that they can easily take their eye of the ball in terms of running their business.

Often the DIY approach neglects to put in place a non-disclosure agreement for the protection of the business but the normal argument for the this approach is that it saves money by removing some of the professional fees normally incurred from lawyers and accountants. The outcome can disadvantage the seller in terms of the strength of their negotiating position as well as overlook key elements which are necessary to get the process from start to finish. It is a specialist field and we have found that choosing the DIY approach is a real pothole which can be avoided by having advisors who are experienced in the process.

3. Procrastination

Procrastination as we all know is the habit of delaying an important task, usually by focusing on less urgent, more enjoyable, and easier activities instead. It is different from laziness, which is the unwillingness to act. This is a real pothole for owner managers and it rears its head in deciding when to sell and also at the point a buyer puts an offer is put on the table.

It is of course common sense that the most opportune time to sell a business is when there is no pressure to. When you sit down and think about it the best time to sell and achieve the best price is when the sales and profit graph are on the up. Procrastination in choosing when to sell can lead to trying to sell it when the graph is flat lining or dipping and in that scenario there is a real risk in dilution of value.

We have found that even when a buyer is in play it is terribly important to stop procrastination or a drawn out process seeping in. Why? Because the longer a deal takes and the slower it proceeds the less likely it is to cross the finishing line. Whether it slows down through protracted negotiation on the heads of terms, or one side feels they are paying too much and the other that they are not getting enough, or a post deal consultancy agreement is not adequate, or integration is not thought through enough, or not enough warranties are in place or there is the loss of a feel good factor, it is crucial to fix the differences quickly and not delay.

The formation of a deal is when both parties are meant to be showing their very best performance and their highest standards so that trust, goodwill and energy is being established in equal measure by both sides. Get it right before completion and there is a greater probability that it will go right post completion.

www.potholes.co.uk states that if all authorities were given the budgets they need to fix their roads, it would take English authorities 12 years to catch up with the current backlog, and Welsh authorities 14 years. Potholes are real on the road and on the road to selling your business. Avoid them at all costs!

 

|Tom Bathgate MBA|July2018|tom.bathgate@broadthunder.co.uk|