The five simple tips on how to sell your business
When it comes to selling your own business, it takes an objective understanding of the entire sales process. Katharine Byrne explains the five most salient points underlying any sale.
The wealth of mergers and acquisitions activity in the first weeks of 2015 will be taken as a sign the Irish economy is simmering back to life.
When it comes to selling your business, the bigger picture is always important, and the current climate of renewed confidence provides a much more favourable backdrop than any we have seen recently.
Equity buyers are now actively looking in the Irish market, particularly targeting IT, engineering and life sciences - even lower tech firms which show solid cash flow and good growth prospects are in the frame. So is now the time to sell? Well, an exit strategy should be an underlying consideration in a business owner's thinking at all times. This doesn't mean having a plan set in stone but it does mean having a clear understanding of where the real value of your company lies and what you need to drive it.
It also means regularly reviewing whether the business has its assets properly aligned and is using the most tax-efficient structures - if you're not doing this, then why not?
Owners sell for a range of reasons. For some, it is the last in a long line of options; for others, the disposal is the high point of a well-executed business plan. Whatever the reasons, there are five key issues to address:
1. Get the right team
Whatever the perspective for you, one core requirement remains the same - the need for a trusted external adviser who can bring objectivity, security and structure to the process.
Yes, I would say that - but selling a business can also prove unexpectedly educational for vendors. The biggest learning for many is understanding what they are actually selling.
Some owners come to the process with an historical focus - believing that the basis for their company's value lies in the last few years' accounts; others come as converts to their own blue-sky thinking, looking for a sale price that is based on future, wildly optimistic projections.
The truth is that neither reflects where a serious buyer will be coming from. What they should focus their efforts on is what the business can achieve in the short to medium term - typically the two to three years from when the sale proceeds.
2. Know your business
as a buyer sees it
Identifying the core values of your business, and what will attract a serious offer is then central to your selling process, and the objectivity of an external adviser is crucial in guiding this.
Often, it results in a picture of a firm at odds with the image the owner has built up over the years - the strengths and weaknesses as perceived by a potential buyer may be very different to how the seller sees them.
3. Look global
A good adviser should also be able to extend the geographical boundaries of the search for a buyer. Historically, SMEs in Ireland have not been strong in looking beyond the local options, but with many global firms actively considering openings here, the best opportunity may well be outside Ireland.
4. Understand the sales process
The strengths of a potential buyer and the credibility of their offer present another key concern in the sale process. One of the common pitfalls we see is a business owner jumping into unstructured process, often on the back of an unsolicited offer.
Owners may either provide a set of projections they believe to be credible but which don't stand up under scrutiny, or share sensitive information without necessary protections in place.
Owners can often find that, where they are approached with an unsolicited offer, it tends to be higher than the final agreed price. One goal of bringing structure to a sales process is to ensure the due diligence process doesn't leak value.
A further common issue is where the business owner holds back on a key piece of information that emerges later in the process. The secure sharing of information between the seller and a credible prospective buyer is the best way to ensure the sale runs smoothly.
5. It's not the end, it might just be the beginning
If selling a business is an education, then it is also almost certainly an emotional roller coaster too. Those who have gone through the process will often say that they didn't expect the experience to be so detailed and so demanding.
However, many will also say the process gives them an entirely new perspective on the business. Those who stay on as part of the new structure will often talk of being energised by the new values and new opportunities for growth they hadn't recognised before.
Owners of family businesses will typically have already jumped a number of emotional hurdles before reaching the point of selling. Often, this is not just about family matters, but a concern that staff are protected and that the business will continue in its current form. A good adviser will be able to vet potential buyers to ensure that those concerns are met.
With equity and credit coming back to market, MBOs are also on the way back too. If an exit strategy is due to retirement and the view is that the current management isn't strong enough to continue, a trade purchase may be an option.
For those selling to make a clean break, the exit is often the precursor to starting afresh in a new one. Many successful vendors tell us that the experience has left them with an appetite to get into something new, but this time with a much clearer understanding of where the value lies in a business.
After all the thrills and spills, the search for the next roller coaster ride begins.
Katharine Byrne is partner in BDO's Corporate Finance Team and has been adviser on a number of sales - www.bdo.ie
Sunday Indo Business