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How To Sell Your Business: The Definitive Guide

June 6, 2019

Seven Steps To Selling A Business

Selling a business can be a stressful process, if not done correctly. It can be even more stressful if you aren’t entirely sure how to go about it. To successfully sell your business for the best price and value requires a lot of time, effort, strategy, teamwork, research, planning, networking, patience and commitment. Deciding whether to put your business up for sale should be based on an accurate assessment of market demand to maximize the chances of attracting high volumes of interested buyers. As one of the leading brokers in the UK, we understand how to sell a business in the most efficient and effective way.

Our main goal is to make the process as easy and stress-free as possible for you. We take care of the hard work while you can rest assured that you are getting the best deal for your business. Hilton Smythe will guide you along the selling journey from start to finish as transparency and trust are embedded in our process. Below, we have gone into great detail to provide you with the seven steps to selling a business. We hope this guide provides you with great value along with a solid foundation to get your business on the market.

Determine the value of your business

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So, you want to sell your business? You want to exit the business smoothly and efficiently and most importantly find the right buyer. The prospect of retirement or a new venture excites you and you can nearly see the finish line. But how do you take the first step to sell? Simple: Determine the value of your business.

In order to achieve a realistic valuation, you should refrain from valuing your business yourself. Handing over the responsibility of valuation to experienced external experts, such as Hilton Smythe, will guarantee you an objective valuation. We can provide a business valuation from our valuation experts at no charge!

A common phrase in the industry is ‘businesses are only ever worth what someone is willing to pay for it’. It is so common because it’s true! If there isn’t a buyer out there that is willing to pay the price for your business, then it simply isn’t worth the price you are asking for. It is important to remember that the valuation is only ever a starting point for negotiations to commence.

Valuing a business can be done in a number of ways, usually depending on the buyer and the industry norms. Two common types of valuation, that can be applied to a broad range of business types, are EBITDA Multiple and Asset Value.  

EBITDA Multiple

EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) is a ratio that measures the value of a company. EBITDA Multiple works with the businesses operating profit before any tax or interest charges are deducted.

Amortisation and depreciation are accounting principles that allow the writing off of tangible and intangible business assets on the balance sheet. Assets are broken down to represent an annual cost of the particular asset based on its perceived operating life. To use an example, let’s say you have a company car that is bought for £30,000 and perceived to last 5 years. Your business will be charged to the balance sheet at £6,000 per year.

An EBITDA multiple works by taking the EBITDA figure and then multiplying it to get an accurate valuation figure. A number of multiples can be used in business valuation but for the majority of small businesses, you would be looking to achieve between one and three times EBITDA. If you are working with an experienced broker, they can share actual sale prices and multiples, meaning you know the price you are asking is a good starting point.

Asset Value

In some cases, businesses assets can be worth more than the EBITDA multiplied sum. Therefore, as the value is in the assets, you will need to use another valuation method. This leads us to the second valuation method that is: Asset Value.

How the Asset value is calculated will depend on whether you are a limited company or a sole trader/partnership. If you are a limited company then you are required to gather specific information to prepare for the sale. This includes reconstituting your balance sheet to bring the value of fixed assets up to date to reflect the market value. This differs from the artificial depreciated value that your accountant may hold.

On the other hand, if you are a sole trader or partnership then you simply need to make sure you know the value of your assets and make sure they are free from any encumbrance. A sole trader or partnership may value the assets themselves online by getting valuations of similar assets.

Ultimately, the key to getting your business valued, whichever type of company you own, is to seek advice from professionals who will be able to guarantee you a realistic and objective valuation. A good advisor is essential. You need to find someone with years of experience in your sector, who has handled the sale of similar businesses. If you instruct professional advisors, make sure that you check the terms and conditions, as they sometimes can contain cancellation clauses.

Hilton Smythe can support you every step of the way with this and ensure your business gets valued professionally and accurately.

Prepare for the sale of your business

So, you’ve gotten in touch with a valuation expert and now you know the real worth of your business. While it may be instinct to get your business on the market right away, there are several processes you need to make sure are in place first.

When it comes to selling a business, timing is everything. There could be many reasons that you want to sell your company from accumulating debt to a new career path. Regardless of the reason, there is no value in rushing to bring your business to market. Rushing into such a major sale could negatively impact your ability to sell successfully.

You should really prepare your business for its sale years before you actually want to exit. We like to use the phrase: start with the end in mind. When deciding whether to sell your business or not, you should base your decision on an accurate assessment of market demand. By assessing your market, you will be able to maximize the chances of attracting high volumes of interested buyers.

Get inside the head of your potential buyers and try to understand why they would be attracted to your business in its current state. Spend time researching your industry and analysing your company’s financial performance in comparison to industry standards. Additionally, you should also spend time checking what the market rates for similar businesses are.

As you may have guessed, before you can successfully sell your business you need to spend a lot of time planning and preparing for the sale. This may seem like a lot of work but it is fundamental to ensure that your business is appealing to prospective buyers. While you may be eager to sell your business right away, the correct amount of planning and preparation will ensure you find the buyer and deal you are looking for.

Financial preparation is key to peak the interest of potential buyers. Buyers will usually be looking to see profits, long-term client base and consistent revenue growth. So, it is your job to update and tidy your books and records, ready for scrutiny. Make sure that you have your most recent accounts ready at hand. Buyers will want to look at your accounts to see if the business lives up to its valuation.

Expect to be asked a variety of questions from interested parties who want to extract every detail about your business. How much revenue has your business turned over this year? How have your business's costs grown or fluctuated over the past 5 years? These are the types of questions you should be prepared for and it’s crucial that you provide clear answers to demonstrate your understanding.

The numbers behind your business aren’t the only thing that buyers will be judging you on. It is sometimes underestimated how much appearance, cleanliness and tidiness can have a lasting effect on people. When you invite buyers over to your business, you should ensure that the building looks tidy and well kept.

Worn-out carpet, peeling walls and tatty equipment can all turn off potential buyers. So while it may seem like something relatively small, the appearance can have a huge impact on first impressions and how people perceive your business. Once your business is looking great, you can then feel more confident as you task a Sales Negotiator with managing the sale of your business.

If your business is too reliant on you to operate it then it will achieve less value at sale. This is where succession planning comes in. Succession Planning is a process where your business can operate without your input. For some people, their business relies heavily on them, if this is the case then start to delegate more tasks. As well as succession planning, it is important to look into your business processes to make sure they are cost effective.

Marketing your business

Business Valued? Check. Preparation and Planning? Check. Now it’s time for the fun part: putting your business on the market. If you aren’t using a business broker to market your business then the responsibility falls upon you. Again, while it may be tempting to start advertising right away, defining your ideal buyer and planning your marketing efforts around that is a much more effective strategy.

In order to define the likely buyer of your business, you need to conduct some market research. Market Research will allow you to form profiles of your prospective buyers so you know where, when and how to reach them. For example, put yourself in the shoes of a pub-owner looking to put his/her business on the market. There may be a wide range of buyers who are interested in your pub for different reasons.

Are they a first-time business buyer? Have they owned a pub before? Why would they be interested in your pub? What is their financial status? These are the types of questions you need to ask and answer to ensure your marketing plan is catered to the right audience. Determine what type of person would invest in your business and build your marketing plan based around them.

Once you have defined your target audience, you can then begin to craft your marketing message. Questions that should arise now are: what do you want to say and where do you want to say it? You need to think about how you are going to present your brand to your audience in a way that will resonate with them. Using storytelling in marketing is often a great way to connect with an audience. People buy from people after all! What is the story of your business and how can you evoke some form of emotion in your audience? Entrepreneurs are often fuelled by passion so if you can share a story that relates to your audience they will be more willing to buy into you and your business.

Hiring a professional photographer or videographer to capture your business is a must. Unprofessional looking images or videos will stand out like a sore thumb on the market place to make sure that what you capture is pleasing on the eye. After you have devised a stellar marketing message, it is now time to choose which channels you are going to distribute it through. To connect with your intended audience, your message needs to be seen by the right people.

When marketing your business, you have two options: use a business broker or market the business yourself.

To list your business on rightbiz or similar sites yourself, you simply need to enter your business information on the site. This includes your businesses price, background information on your business, images and more. Once your information is entered you will hopefully start to get enquiries from interested viewers. Choose your channels wisely and think back to your buyer profile. Which channels would your buyers be in and how can you make your proposition attractive to them?

If you choose to use an experienced business broker, like Hilton Smythe, to market your business then you can sit back and relax while we find the right channels for you. We understand that no two businesses are the same, therefore, we tailor a marketing package to suit your exact needs and business circumstances. When it comes to advertising, it is a necessity to generate maximum interest and exposure.

Hilton Smythe works with some of the biggest advertising listings in the UK, to get your business seen. When it comes to successfully advertising your business for sale, our wide reach and marketing network delivers excellent results. Our vast range of advertising options is designed with how to sell your business quickly in mind. Some of the channels we use to market businesses are “rightbiz.com”, “daltonsbusiness.com” and “businessforsale.com”. RightBiz is a great channel to use with 7.2 million active views and 266,617 enquiries received. “Businessforsale” is also a must for promoting your business to 11.1 million monthly visitors.

Ultimately, marketing effectively is the key to finding the right buyer for your business. You could have a great valuation and have all the financial planning in place but still not find a buyer because your marketing is poor.

Find the right buyer

After lots of strategic planning, you’ve nailed your marketing efforts and you have buyers queuing up to contact you. Now you feel slightly overwhelmed and are having a hard time filtering through all your enquiries. With so much choice, choosing the right buyer can prove difficult if you aren’t aware of the types of buyers and their intentions. Ideally, you want a buyer who is professionally capable and financially qualified to manage/own your business. Below, we will lay out the three main types of buyers and their intentions for buying.

The first type of buyer to be aware of is the Strategic Buyers. These buyers normally consist of companies that already exist in your industry or companies that are looking to enter your market. Strategic buyers can come in all shapes and sizes. Large companies usually tend to be the most common strategic buyers. Although, smaller companies looking to expand and buy out competition may also be strategic buyers. Companies that are interested in buying your business could be looking to make a number of different strategic moves.

Perhaps your competition is looking to overtake your business to increase its growth and profitability. Or, perhaps a company that is hundreds of miles away is looking to expand and hit a new geographic location. You may be thinking “why would I want to sell to a previous/current competitor?”. An advantage of selling to a strategic buyer is that you may be able to demand a higher selling price. Strategic buyers will usually pay a premium for the acquisition as they have a need that is identified.

It is always useful to understand what is fuelling the buyer's motivations and to see if you are happy with what they are trying to achieve. It may be that you gravitate towards the type of buyer that is buying simply because they want a career or lifestyle change. This leads us into the next type of buyer: Individual Buyers.

Individual Buyers tend to consist of people looking to own a business and to run it as successful as possible. The motivation behind there purchase is usually based off wanting to have a career change, provide for their family or creating a new lifestyle for themselves. Imagine someone who has had a steady corporate job for ten years and, with the help of some savings, is now looking to change direction by buying a business.

These types of buyers may be suited to your business if it’s in the small to medium market range. With Individual buyers, they may be inexperienced and have difficulty securing finance. It’s important to use a business broker with any type of buyer as they will be able to easily spot and manage the different types of buyers in a professional manner.

Two down. One more to go. The third type of buyer are known as Financial Buyers. Financial Buyers mainly consist of investors who are interested in purchasing, investing and reselling a profitable business. One common type of financial buyer is a Private Equity Group. Private Equity Groups are investment management firms interested in reselling the business in the future. These types of buyers may buy 100 percent of your business or buy a controlling share allowing you to maintain some ownership. Commonly, financial buyers will not pay as much as the strategic buyer, however, if you can prove that your business can generate consistent profit and growth then they could be won over.

When selling a business on your own, there are some pitfalls that you may run into. One of these includes only being able to deal with one buyer at a time. Luckily, with a business broker, they can expose your business to numerous potential buyers, increasing the likelihood of multiple offers and the best final price.

As previously stated, we recommend using a business broker to help with this process as they will qualify all prospective buyers and ensure they are the right fit for your business. The business broker will review ownership, look at the available funds to invest, the sources of financing, and any judgments or bankruptcies filed. Business brokers will also ensure that important information isn’t leaked to competitors, suppliers, employees, or customers prior to concluding the sale. If this information was to get out then it could impact the deal substantially and possibly the company’s competitive advantage, management structure, profitability and much more.

Negotiations

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If you think you have lined up the perfect buyer for your business then it only means one thing: let the negotiations begin. Business sales can be complicated transactions so it’s important that you get the basics right and then fine-tune your approach from there. To a business owner, selling a business can be emotionally challenging but also incredibly rewarding. This gives more reason for you to know what you’re doing and make sure you go about it in the correct way. Below, we are going to lay out five key tips to negotiate like a pro.

1. Seek Advice

Before negotiations begin, it is always a good idea to seek advice from a strong team of advisors. This could be a business broker or simply a financial expert. The sales process runs much more efficiently when there are experienced minds guiding the way. You will most likely need advice on legalities, tax and financing, so speaking to a business broker is a great way to enhance your own understanding. Many business owners will only sell a company once whereas others may have quite the track record. One thing is for certain though, the majority of owners will not have the experience or understanding of the experts. If you want to walk away with the best deal for your business then get in touch with a business broker!

2. Research

Prior to entering negotiations, try to gain an understanding of the person you are negotiating with and what their intentions are. Doing some research on your buyer is highly effective as it gives you more information to work with and allows you to propose an offer that they can’t refuse. Not only should you research the buyer, their business (if they have one) and their motivations, you should also have information about relevant market activity, comparable sales and conduct due diligence. The more research you can do then the more likely you will come across as confident, knowledgeable and trustworthy.

3. Flexibility

When entering negotiations, you have to be willing to compromise to a certain degree. If not, then you may be disappointed when things don’t turn out exactly the way that you wanted them to. In fact, being inflexible may actually lead you to lose a sale, so it’s important to have several figures that you would be okay with. In regards to a sales price, having three possible options in your head is always a good idea. For example, option 1 is the price you would be happy with, option 2 is the price you would be willing to compromise for and option 3 is where you would walk away from the deal.

4. Careful Honesty

Being honest with your buyer will be a major factor in whether they trust to buy from you or not. If you can be genuine and honest with them then they will feel assured that your business is worth what you say it is. It means exercising some control over how much information you give away but in a transparent and respectable manner. Giving away too much information may lead you with less leverage meaning that the buyer then has the upper hand over you. During negotiations, it's crucial to maintain respect on both sides. How you present yourself and your offer is imperative to the sale.

5. Be Confident

It’s no secret that first impressions count. How you conduct yourself in this environment is everything so do your best to make an effort. Making an effort could be dressing appropriately for the situation and doing your research on the buyer. Articulating clearly will ensure that your message is fully understood, whereas maintaining eye contact will make you come across as assertive and naturally confident.

Close the sale

The finish line is almost in sight. You’re now picturing retirement in your head and your bags are already packed to jet off somewhere hot. The closing stage is arguably the most important part of the whole sales process, so no pressure!

Due Diligence

Before you give away prize possession to a buyer, they will want assurance that they are getting what you have promised them. This is where due diligence comes in. It is very common that business sales fall apart at the due diligence stage. This is normally because the seller has failed to maintain buyer confidence and undisclosed problems have come to light. To avoid this problem, you can provide your buyer with complete disclosure.

This entails asking your potential buyer for a list of documents or aspects of the business that they would like to look at. By doing this, the buyer doesn’t get met with any nasty surprises down the line and full transparency is maintained.

A buyer will usually want to look at three main aspects of your business: Financial, Legal and Commercial. To ensure this process runs smoothly, having a business broker to provide you with the support and guidance is extremely beneficial. Be prepared to receive a request from your buyer to gain access to Accounts, Legal and Tax Compliance, Intellectual Property Protection, Historic and Projected Financial Performance and much more.

Due diligence may involve the inspection of physical assets or paperwork so be prepared to provide your buyer with these. You should start the due diligence process when you have agreed a price and terms with the buyer, it’s usually carried out alongside the preparation of the legal paperwork needed to close the sale.

Finalising the sale

As the due diligence stage thankfully comes to a close, now is the time to finalise the sale of your business, at last! Now you can outline the terms of the sale based on what was previously agreed with the buyer. You will also need to be aware of the possible future liabilities, indemnities and warranties that you are taking on as part of the agreement. It’s always useful to be prepared for buyers to lower the initial offering price if they feel they aren’t happy with something that was uncovered during the due diligence process.

A professional business broker is indispensable to the sale process. Make sure you choose a credible broker who can represent you fully – protecting your interests and helping you capitalise on opportunities. The invaluable advice business brokers can give will prove their worth and assist you in getting the deal finalised. There will likely be a compromise on the deal from both parties but hopefully it is still a mutually beneficial one. A dialogue with all parties should be maintained so that the final agreement is universally accepted and there are no hidden surprises from either side.

Once both parties have reached an agreeable price, the buyer can then sign the contract of sale. Congratulations! You’ve just sold your business and can now jet off to the Maldives and retire in peace.

Selling a business can be a long process with lots of planning but the reward at the end makes it all worth it!

Do I need a business broker?

Although it is fully possible to sell your business on your own, having a business broker guide you through the sale makes much more sense from a business perspective. By using a business broker, you will be in a much better position to achieve the highest price for your business and will save time and effort. It’s important to choose your business broker wisely. Look at their previous experience and decipher whether they are true experts in their field or not.

Transitioning out of your business can sometimes be messy. One of the best reasons to use a business broker is because they remove stress from the equation, allowing you to exit your business smoothly. Some business owners may initially be reluctant to use business brokers as they aren’t willing to pay the broker fee. What these owners don’t realise is the value that they will receive from the broker fee and the potential added sales value.

Not only will they receive expert advice from a team of business selling professionals, but they will also result in a better deal than they would have gotten on their own. Business owners will gain much more when they choose a business broker to help them with the valuation, marketing and selling to prospective buyers.

When selling a business, there are many benefits that a professional business broker will help you achieve. A good business broker will be able to represent you during the sales process and liaise with their network of active buyers, meaning you can find the right buyer for your business and lead you to a sale.

The sales process is one of the most important stages where business brokers can come in handy. A business broker will support you with many aspects of the sale from buyer registration forms, non-disclosure agreements to draft sale agreements and due diligence. Acting as a buffer between the seller and the buyer, a reputable and reliable broker will make sure:

  • That you are able to continue running the business efficiently during the selling process so that the value is not decreased;

  • They will manage the entire process from the beginning to achieve a successful sale for all parties involved;

  • Financial analysis and valuation is performed to a quality standard along with a deal structure that is best for you.

  • An unbiased approach to selling your business, this can sometimes be challenging for business owners that have an emotional attachment to their business. An objective approach is always a smart one.

To summarise, business brokers will bring a wealth of experience and expertise to guide you along the business sale processes. Who wouldn’t want to be provided with valuable advice and wisdom at every step of the way to ensure you match your business to the right buyer, gain maximum exposure and secure the best value from the sale of your business.