Henry Campbell-Jones, Managing Director of Hornblower Business Brokers, explains how you can prepare your business for sale.
Owning and running a family business has many advantages both personally and businesswise compared to other enterprises, but what happens when you reach retirement age? What happens if the next generation is not qualified, or not interested in taking over the running of the business? You may have to look outside the family for a suitable successor.
How do you value your business and, furthermore, how do you achieve the optimum value? There are many ways to value a business which we could discuss at length. However, whatever the metrics, the key is to prepare your business such that it is of value to an outside buyer.
Many of the benefits of a family business are the antithesis of what represents value to an outside buyer. Just to mention a few: how will the buyer replace the goodwill and bond that you have developed with your customers, suppliers, and employees? What if the business cannot function day-to-day without your specific knowledge and expertise?
It is worth acting on the following tips in order to maximise the attractiveness of your business.
Ensure that the revenues and sales process are not dependent on you
Ensure that someone else within the business is able to perform the complete sales function from initial enquiry, through bid and quote, to winning the contract.
Businesses that depend on the owner to win new sales (or indeed the strong relationship between the owner and existing clients to maintain recurring business) will represent a major risk to buyers.
If you do not have a sales process, develop one. Have one full-time member of staff attend initial sales meetings with clients and take on your current roles in the process.
Make sure the business functions without you
A good buyer is not looking to buy a job. Ensure that day-to-day issues are not down to you to resolve. The more time you spend in these activities in the business, the less value it represents to the buyer. If the buyer has to work full-time in the business then he/she will have to pay themselves a salary.
Recruit or promote a suitable successor, put a management structure in place or, as a last resort, consider providing ongoing consultancy.
Pass on your ‘technical expertise’ to the business
Consider how a new owner without as much experience or technical knowhow as you will run your business. Again, recruit or promote a suitable successor; put a management structure in place.
By opening up the availability of your business to buyers who do not have the same sector expertise, you will increase the number of potential buyers, and therefore increase the number of offers.
It will also pay off to develop a handover plan to transfer the business relationships to the buyer in an ordered way that will not disrupt your clients and make them consider other suppliers.
Ensure that employee and supplier contracts are in place
One of your key assets is your staff and the buyer will want to be confident that they will stay with the business after your departure. A good track record of staff retention as well as appropriate contracts will do much to satisfy the buyer of the ongoing commitment of the staff to the business.
Set yourself reasonable expectations
The emotional value you attach to the business may be higher than an outside buyer is prepared to pay for the financial return that your business offers. You must be prepared to think realistically, otherwise you simply will not sell the business. Think of your business from the buyer’s point of view, make it easy for them to see how they can make a return on their investment and you will achieve the optimum value for your business.
Remember the best deals are when both sides win. Help the buyer make a success of your business.
In conclusion, preparation is key to achieving the optimum value and realising a family asset that can be passed on to the next generation to develop however they wish to develop it.