Finding the right buyer for your business – someone willing to pay a fair price on reasonable terms – isn’t easy.
Some businesses take much longer to sell than anticipated, perhaps for a disappointing price or even in instalments dependent on future performance – if they find a buyer at all.
It’s imperative, therefore, that you prepare your business for sale properly before putting it on the market.
Confidentiality is one complication.
“Finding buyers can be as easy or as difficult as you want it to be,” says Gareth Smyth, group managing director at commercial real estate agency Hilton Smythe. “When we sell our houses, we stick up a board and plug the adverts all over the web and the local paper which, generally speaking, results in a multitude of buyers expressing interest.
“When we sell our businesses, however, we throw caution to the wind and hold back on our exposure and advertising for fear of losing that special, seemingly loyal customer who buys his daily paper from us.”
But to find a buyer, continues Smyth, you must abandon any notion that total confidentiality is possible – or even necessary. “Whilst in some businesses there is a clear need to be confidential when selling – such as those that take deposits or have longer term contracts with customers – for others it just doesn't make sense.
“Understandably, staff play a pivotal role in the decision not to tell the world ‘we are for sale’, but ultimately, I’m afraid, you can’t sell a secret.
“Therefore, finding buyers needs to take a much more structured form, as in most instances, that great, big ‘for sale’ board is simply out of the question.”
Advertising your business
Thankfully, we live in the digital age and you can find buyers through online classifieds Before you write your business listing – perhaps with the help of a broker/business-transfer agent – it’s worth asking yourself two questions:
1. What kind of person would be interested in this type of business?
2. What are the business’s strengths, especially viewed from the perspective of this buyer? Some buyers might appreciate a ‘lifestyle business’, a ‘great work-life balance’ or a ‘family business with pedigree’; others might prefer ‘high margins’, ‘plenty of repeat business’ or ‘scope for extending opening hours’.
If your advert elicits few enquiries, then periodically finesse the description and headline and perhaps consider lowering the price or changing terms.
Buyers generally prioritise the following:
• A reasonable listing price
• A credible reason why the owner wants to sell – and not because the business is struggling
• Up-to-date books and records with solid trading performance
• Strong, verifiable cash flow
• Favourable lease terms and options
• Tidy, orderly, clean premises
• Appropriate furniture, fixtures & equipment (FF&E), valued fairly
• Experienced employees willing to stay on after the sale
• Training and advice from the seller, potentially including for a transition period post-sale
• Covenant not to compete and non-solicitation agreement (i.e., a legal commitment from the buyer not to compete for customers or clients after the sale)
• No hidden surprises: deficiencies in the business omitted from the listing and not volunteered during due diligence
Top tips from a BTA: Gareth Smyth, group managing director, Hilton Smythe
1. Sites such as BusinessesForSale.com are ideal, as they are places would-be buyers are visiting for that next stage in their entrepreneurial careers.
2. Of course, if it all sounds like too much hassle as well as running your business, you could instruct a reputable business broker who will do this and more on your behalf.
3. You can also ask your broker for access to a database of buyers, which can be extremely useful.
Established in 2011 Bolton-based Hilton Smythe has grown rapidly and offers “a forward thinking, innovative approach” to the “prompt, effortless purchase or sale of your business.”
It’s also useful to get a handle on the kind of people who buy businesses.
Representing the majority of buyers, dreamers see entrepreneurship as an escape from their 9-5 drudgery. They’re looking for a job and an income rather than an asset to sweat and they’ll probably want to buy in the area they live.
They can’t afford to pay with their own cash, but they might boast a strong CV and credit rating as well as a mortgage to secure a bank loan against.
If they have a redundancy package to draw on, they can move quickly when they find their dream pub, B&B or retailer. If they’re still employed, however, they’ll probably be more cautious and more likely to get cold feet – even over the idea of business ownership altogether.
The strategic buyer seeks acquisitions in a similar sector to their existing business. If strategic buyers are direct competitors, vendors or customers, then tread carefully.
A broker can help you vet candidates to verify that they’re enquiring in good faith and advise on disclosing confidential information (contingent on signing a confidentiality agreement).
A strategic buyer is more likely to meet, or go above, your asking price if they think your business can strengthen theirs – in other words, together they’ll be greater than the sum of their parts. It also saves them the effort of building an equivalent operation from scratch – it’s an off-the-shelf solution, effectively.
Principally interested in your cash flow, profitability and growth potential, financial buyers are wealthy individuals or companies who want somewhere to put excess capital for a stronger return than they might get elsewhere.
They prefer thriving enterprises, but may see value in turning around a struggling business.
They’ll look for easy ways to streamline operations and grow margins and profits with a view to selling the business at a profit later on.
They won’t be hands-on with the business, so will be unmoved by incentives like ‘lifestyle business’, ‘work-life balance’ or ‘accommodation included’.