If someone wants to buy your business, it’s good news isn’t it? In principle, yes! But bear in mind the deal isn’t done until the contract is signed. So take a breather and consider what an approach to buy your business actually means – it may be the best thing that could happen or it could be a huge disappointment if a sale doesn’t materialise or your business is worth less than you thought (in short, if the outcome isn’t as you expected it to be).
Over the years we have worked with many businesses that have been involved in deals, both as buyers and sellers. If you are buying, the ‘thrill of the chase’ can be all consuming; if you are selling, whether to exit or to sell part of the business to raise money, the process can be lengthy before you see any money in the bank.
When you are approached about selling your business the initial reaction will vary depending on where you are in your business journey and whether the approach came out of the blue. If you haven’t considered your exit plan an approach could put you on the back foot and hamper your chances of a successful outcome.
Before doing a deal – or get too excited about the prospect of doing a deal – here are five things you should consider:
- Relationship or chemistry. Even if you are wanting to sell the business outright it is quite possible that you will be involved for a period to secure the full value of the deal through contingency or earn out provisions. Perhaps you will become an employee or a consultant with the acquirer. Can you work with the people involved? Can you do so when you are no longer the boss?
- Due diligence. Almost by definition you can’t do too much due diligence to understand and evaluate all the important and relevant aspects of the acquirer and the deal being offered. Due diligence is usually associated with the buyer but as a potential seller this is an important phase in your life so get to understand the other party. What is their strategic interest? What do their finances look like? Do they have a track record of acquisitions? Can you find out anything about their culture? Do you have anyone in your network who has worked with or for them? Just because the acquirer made the first approach doesn’t put them in the driving seat, so don’t be passive. Set out what you want to know and get on the front foot. Not only does this help you get the information you want it also establishes a peer-to-peer relationship.
- It is probable that the potential sale of your business, whether for exit or fund raising, is a significant event in your business and personal life so don’t skimp on getting the best advice you can afford. Your first calls will be to your current business advisers but do check that they have the experience. Sometimes we find our clients have been using the same advisers for many years, not an issue in itself, but it can be problematic if your business has outgrown them.
- Negotiate. There is no right price for your business other than the value agreed between you and the acquirer / investor. Advisers may give you a view, refer to industry multiples and provide a guide value, however what is paid will be based on the specifics of your business and how you approach the negotiation.
- Keep focussed on the business. Getting an approach or even an offer leaves you with plenty to do before a deal is secured. In the meantime you have a team, customers, cash flow and other matters to manage to ensure the business stays on track. This is important in terms of the deal – a buyer or investor will want to know the business doesn’t implode if your attention is deflected – and also because most initial approaches do not result in a deal leaving you to return to running the business.
The moral of the story is to have an exit plan in place. Reacting off the cuff to an approach is likely to result in a disappointing conclusion unless you have previously thought through the exit you want and taken steps to achieve that outcome.
Selling your business as part of an exit plan, or raising finance by attracting investment, is an exciting step in your journey towards building your business and personal wealth. With a guiding hand the process is far more manageable, enjoyable and more likely to be successful.
Your exit may seem a long way off but to get the best outcome takes planning and focus. An exit plan will give you confidence that an approach to buy your business can be handled successfully and lead you to the next stage of your business and personal life. Contact us to learn more.