Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
In a previous article entitled “Preparing your business for sale – When should you sell your business?” we explored common reasons why business owners choose to sell their businesses.
Once you have made the decision to sell your business, you should identify your overall personal, financial and business objectives and set realistic goals for the sale of your business, which correspond with your overall objectives.
Identifying your overall short, medium and long term objectives and specifying a series of goals to increase your prospects of achieving those objectives will help you to focus on your reasons for selling your business; put the sale of your business in a proper working perspective enabling you to detach emotional issues from business ones and increase the likelihood of an outcome that you consider to be successful. It is worthwhile making the point that it is rare to achieve all of your goals as there is likely to be a conflict of interest between a seller and a buyer on some key issues and you may have to compromise on some issues in order to complete the sale of your business.
It may be that you review and revise your objectives and goals several times during the sales process both prior to and during any sales negotiations but it is important that you keep them in mind during the process and keep track of any changes that you make to your goals so that you can evaluate whether a proposed transaction truly meets your objectives and goals. Determining objectives and setting goals early on when selling your business will help guide you through each step of the sales process. Trying to sell your business is likely to involve a significant amount of your time and effort as well as the costs of external professional advisers and will almost certainly involve a degree of heightened stress. There is little point in putting yourself through any of those if a proposed transaction does not meet your objectives or goals to a sufficient extent.
You may wish to divide your objectives and goals into 4 main categories – personal financial, business financial, personal non-financial and business non-financial. They are likely to be based on factors such as your knowledge of the condition of your business and the market in which it operates, your and your family’s financial circumstances and requirements, your exit motivations and priorities and your preferred sale approach.
It is worthwhile spending time making a detailed list of the items and any questions, which you believe that you need to consider in connection with the sale of your business before working your way through that list in detail. Preparing such a list and answering the questions, which you have raised, will force you to consider carefully some difficult business, financial and personal issues but can help provide you with a clearer view of the current status of your business and the steps which you need to take in order to increase its value prior to sale. In addition it is likely to assist you to identify your objectives and goals in selling it. You need to determine the type of business exit option that suits you.
Below is a list of some of the issues, which you may wish to consider. However, you should bear in mind that whilst many issues will be relevant to all or the majority of businesses, every business is unique and every business owner is unique.
What is really important to you?
Do you wish to sell the whole or only part of your business?
Are there any assets used by the business, which you wish to keep?
How quickly do you want or have to sell your business? Subject to matters such as market conditions, in general terms, the greater the amount of time you have to sell without external pressures, the more likely you are to achieve your transaction goals.
Do you wish to remain involved in the operation of the business after you have sold it or do you wish to cease involvement immediately? If you wish to remain involved, what kind of role do you wish, on what terms and for how long?
What managerial or other expertise is required for your business to continue to be successful? Who is willing and able to run the business? What preparation do they need to take on that role?
Are there any restrictions on the sale of your business (or any part of it)? By way of example, are you obliged to sell or offer to sell your business to a business partner, franchisor, licensor or supplier?
If there are no business sale restrictions, do you wish to keep the business in the family?
If there are no business sale restrictions and you do not wish to keep the business in the family, would you prefer to sell the business to (a) a partner, key employee or group of employees; or (b) pursue a sale to a targeted business such as a supplier, competitor or strategic business buyer; or (c) seek to sell to any buyer who has the financial and managerial capability to buy my business. It may be that you do not care about the identity of the buyer as long as the buyer meets your financial requirements. However, the nature and identity of the buyer is likely to have an impact upon various aspects of the transaction.
What are your financial requirements? Do you need all cash paid upon completion or are you able and willing to accept part of the payment by way of some form of staged or deferred payment?
How much do you consider your business is worth? Have you had it valued? Whilst the value of your business depends on many factors, including its market sector and the status of the local, regional and national economy, the majority of small businesses are sold at a multiple of 2-4 times their annual earnings depending on its pre-sale condition and attractiveness to buyers. Are you willing or able to commit time and effort to improve the condition of your business with a view to trying to improve the price?
How important is it to you to maximise the price for your business compared to other personal or business issues?
Do you wish to take any steps to protect, reward or retain any of your employees or others with an interest in your business and, if so, are you able to do so? Do you wish to try to sell your business to a buyer who plans to retain employees and therefore cause little disruption in their lives or are you willing to sell it to a buyer with plans to merge, move or significantly alter the business.
Do you wish the business to retain its name and identity following your exit? How important is it that your business retains its independence?
How should the business be structured and financed prior to the sale of your business to take advantage of future opportunities? Do you need to restructure or refinance?
Ultimately every decision to sell a business and every business sale is based on individual circumstances. There is value in most businesses so, if you wish to sell your business, there is always likely to be a buyer no matter what your reasons are for wishing to sell it. However, the earlier you create an exit strategy and start preparing your business for sale, the better your chances are of getting more value from the sale. In order to maximise your return from your sale, you need to be in control of the process from start to finish, which requires detailed thought, preparation and planning. Determining your objectives and setting your goals early on when selling your business and creating a viable exit plan and keeping it up to date means that you will be ready to take advantage of any good opportunity to sell your business.
Whatever stage of the business sale process you have reached, we can help you to understand the business sale process, to choose the option that is right for you and to realise the value of your business.
Contact us
If you would like more information about selling businesses or would like to discuss a potential or existing transaction, please contact us by telephone on +44 (0)20 3126 4520 or +45 38 88 16 00 or by email at enquiries@orrlitchfield.com
