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Thinking of Selling Your Business?



By Business Desk


Monday, April 1, 2019.


Business transfer agents work with you to buy and sell businesses. When it comes to buying or selling a business via a broker, you need to understand that not all brokers and brokerages are created equally. While there are some fantastic agents in the marketplace, and many operating in the UK and internationally are excellent at what they do, this is not always necessarily the case. As the market is not regulated, it’s possible to fall foul of some bad actors. Here, we look at four bad practices you should watch out for so you can avoid them when choosing a business broker to work with. But first, let’s take a look at the process entailed when selling a business…


SELLING A BUSINESS - THE PROCESS


Are you thinking about selling your business? Is there ever a right time to do so? This is a question that is often asked. The short answer is ‘yes’ – there are times when selling a business is a smart move. However, there are a lot of factors that need to be considered, and the situation needs to right. There are, of course, some scenarios whereby the sale of a business is desirable or indeed necessary. Examples include ill health, emigration, or shareholder dispute. However, in most cases, it is a choice, and consequently, timing is crucial.


What you need to consider when selling a business

There are lots of factors that need to be taken into account when selling a business. The first issue is the valuation of your business. You should discuss any issues that could impact the future results of this valuation. It is important to plot this into the calculations. For example, if debt is dropping off it can impact your mortgages, loans and hire purchases, which will then have an impact on the overall valuation of your business.


You then have the economic cycle to bear in mind. This includes access to funding for the buyer, as well as any debt in the business, succession issues, a need for capital expenditure, and perhaps the impending expiry of a lease. You may also want to extract capital from the business on tax efficient terms. Furthermore, you may need to lend money from the likes of Merchant Cash Advance so you can get your business in the best position for a sale. As you can see, there is a lot to take into account, and it is clear that planning the sale of your business is all about timing. For instance, if you cannot extract capital tax efficiently right now, then maybe now is not the time for a sale.


Professional advice is worth its weight in gold

The above can be a lot to take into consideration. You may feel that now is the right time to sell your business because it feels right for you, but how do you really know? Could you be missing out on the opportunity for more value? Would it be better to wait for a year or two? This is where professional advice really shows its worth. Align yourself with a quality firm that can assess your business, your goals, and your current situation, and determine the best course of action.


It is important to seek professional advice as early as possible. You should do this as soon as you are debating selling your firm. This is critical because some sellers leave it too late. If you do this, you could miss out on the full value of your business, as you have closed doors on opportunities that would have otherwise been available to you if you had sought expert advice earlier.


USING A BUSINESS BROKER TO SELL YOUR FIRM


Pitfalls you need to be wary of


The first practice to watch out for when using business brokers is what is called ‘the rat trap’. This can often catch out vendors and there are many real-life examples of this.  Disreputable business transfer agents may sign you up without any real expectation of selling your business. Their end goal is not so much to sell your business, but rather to get you tied into a contract. To do so, they may flatter you with a much higher than expected valuation, supported with unsubstantiated evidence for why it is so high. The contract you are encouraged to sign may well have small print, directly or indirectly, that states the broker's commission is payable in full under certain conditions. Remember that this commission is often calculated as a percentage of the value of the business which they have given you in the first place. It can become payable to a business broker under conditions such as a new director being appointed or changes in shareholders. Triggering the clause may require the vendor to pay the full commission amount. To avoid this, watch out for an unbelievably high valuation of your business and check the past successes of any business broker before signing up to anything.


Giving an incorrect valuation of your company


Giving a business an erroneous company valuation is something which can happen. Whilst house valuations are measured against a standard in the Land Registry, for example, there is no external guide to valuing a company. Most owners and shareholders rely on using business valuation experts. The cliché states that a business is only worth what a buyer is willing to pay for it. However, as a vendor, there is no clear way to effectively corroborate the valuation you’re given. Less reputable brokers may play to people's egos, offering an unrealistic valuation of a company to secure a client, as in the situation above. There are other issues with pitching a company at a higher than market value price. An overvalued business may sit on the shelf for months, often until the broker suggests dropping the asking price. By this time, you have already invested time in assisting your broker in preparing information such as marketing materials, recasting your accounts and tidying up other loose ends; and are therefore likely to take that advice. But a business worth £800,000 is listed at £1.2m, say, then later reduced to £800,000, it becomes far less attractive even at that price. Securing the services of a broker with a top reputation for trustworthy business practices is therefore essential.


No Fees, No Risk From Business Brokers


Many business brokers and business transfer agents operating at the lower end of the market offer a no upfront fee policy, i.e. no payment till completion of the sale. Be assured, though, you’ll find that charging an upfront fee is the route favoured by the most reliable and trustworthy business broker firms. Bear in mind that the ‘no sale, no fee’ structure may look attractive, but to the business broker, it is in fact more risky. If you decide to pull out of the sale at any stage, as is your right, they will be left with nothing. This risk, and others like it, instantly reduces the amount of work the ‘no win, no fee’ broker is willing to commit to finding you the right buyer. You may find that you have to carry out far more work than is desirable, when, after all, you still have a business to run. Finding the right buyer can take time and if insufficient effort is being employed to find that ideal buyer, then the length of time the company is on the market can have a detrimental effect on both customer loyalty and staff morale, for instance. Better to pay an experienced, specialist business broker in the UK a sum upfront and work as trusted partners together to achieve the best end result.


A Company Valuation Does Not Necessarily Translate Into A Successful Sale


After a great company valuation, what owner could resist claims of large numbers of eager potential buyers with deep pockets, raring to go? Business brokers may approach clients with just such a claim. Simply take advantage of the broker’s company valuation services, sign up, and your business will be sold straight away. But that isn’t how it always works. The quantity of names on a buyers’ list matters much less than their quality, i.e. how ready they are to buy into a business and how much cash they have to invest. A broker will email details of a company for sale to their list, and one of three things happen. Firstly, several eager and fully qualified buyers offer indications of interest based on the valuation of the company. These buyers have intent and the means to do so.  Secondly, responses come from time-wasters who don’t have the finances but are looking for a naive seller who will opt for the promise of future payment for the business. The third option is no response at all. The best way to avoid all of these pitfalls is to search for and work with a reputable business transfer agent.


We hope this guide has helped you on your quest to sell your business. Good luck!




Thinking of Selling Your Business?

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