Diverco sells your business confidently and confidentially

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What to expect when you sell your business

By Peter Dodgson

Every business sale undertaken by Diverco is as different as the nature of the business in which it is involved. Over many years, however, many similarities have emerged which can prove useful to owners thinking of selling in clarifying their own decision.

There are many reasons for selling - often retirement or ill health. It might also be brought about by fear of a recent change of government and future tax implications or because the owner is not prepared to risk further capital in developing the business. An approach from a competitor, desire for a change of direction, or the hassle factor of continuing to run a business are also frequent reasons for wishing to sell. Also the need for a larger group to sustain the growth of the business or simply the wish to exit or retire and thereby make a capital gain.

Loyal Staff

Then there is the type of transaction which might be expected. The sale within the trade, perhaps to a competitor or a group seeking further growth. It might be a sale to loyal staff or to new outside managers whose expertise will be beneficial to a cherished family business and to those continuing to work in it.

Whatever the reason and type of sale, there are a number of matters which you will need to consider sooner or later. For example, what are the tax implications likely to be? Your valuation expectancy should be realistically examined and then there is the method of payment and handover considerations. All need to be discussed, preferably with someone detached from and independent of the business.

When you have come to realistic answers concerning what you want from the sale of the business, the requirements of a potential purchaser need to be considered.

A comprehensive prospectus needs to be drawn up, with details of the company history, activities, staff, product literature, customer base competition, shareholdings, a financial summary, and, importantly, the reason for sale. Ideally, prospective purchasers will look for a profitable track record and be assured of a strong, ongoing management team. A positive cash flow with sound financial records and monthly management figures will also be helpful. The customer spread needs to be good and high margins, modern plant, strong brand identity and good growth potential will all reassure a serious acquisitor. A business plan is also critical.

Commitment

Most important, however, is a genuine commitment to sale. Purchasers hate to be led on by time wasters as do vendors.

So just how do you arrive at a proper valuation? There are a number of key considerations which really count. Are the profits shown maintainable and for how long? Should assets be revalued and how much is the goodwill really worth? Will the purchasers expect you to have an ongoing involvement with the company or prefer you to walk away on completion?

All these matters will form part of the negotiations. Due diligence procedures will need to be carried out, warranties will be required from both parties and legal matters need to be discussed and actioned. Then there is the question of payment which may be cash, shares or an earn out process. And tax considerations such as capital gains, retirement and taper relief, roll over and possible expatriate status must also be addressed. Diverco would expect to be closely involved in all these aspects, working closely with the company's auditors and solicitors and always the prospective purchaser.

Sounds a bit daunting, doesn't it? Few sales are simple, but with the right, fully independent broker on your side from the start, with no vested interests or hidden agendas, it can be concluded without drama and to your lasting satisfaction, freeing you and your money to enjoy retirement, spend more time with the family - or even to buy another business!

Summary

Reasons for selling:

  • Retirement
  • Tax considerations
  • Change of government
  • Unwilling to risk further investment capital
  • Approach from a competitor
  • Desire for a change of direction
  • Ill health
  • Reduce the "Hassle Factor"
  • Outgrown owners ability
  • Make a capital gain

Type of sale

  • Sale within the trade - a competitor or conglomerate
  • Sale to loyal staff
  • Expert managers from outside the business
  • Flotation

Details needed by Potential Purchasers

  • Reason for sale
  • Business history
  • Business activities
  • Staff
  • Product literature
  • Market competition
  • Shareholdings
  • Financial summary
  • Business plan

The Ideal business will have:

  • A profitable track record
  • Strong, ongoing management
  • Positive cash flow
  • Sound financial records
  • Good customer spread
  • High margins
  • Modern plant
  • Strong brand identity
  • Good growth potential
  • Business plan