Selling a Business - FAQ

A business is normally worth the amount a buyer is willing to pay. However, in most sectors there is a "going rate range" specific to that business sector. There are factors that may affect whether the multiple achieved is nearer the top end of the range or falls to the lower end of the range. Issues such as the condition of the business, or the number of similar business available on the market all affect the final price. This is where specialist advice is required.

At Henley Business we are acutely aware of the sensitive nature of buying and selling a quality business, and will at all times endeavour to ensure the highest level of confidentiality and discretion. We are scrupulously discreet in all our advertising and marketing of your company, never mentioning your name, location. We are meticulous in hiding any details from our ‘teaser page’ that may identify you to your competitors.

This is a point which is always up for negotiating. With our experience we like to advise the seller to be involved with the purchaser for several months post sale, depending on the circumstances. This will ensure the smooth transition of your business and client base to the new owner.

This normally depends on the urgency of both the seller and acquirer. We aim to have your business sold within 32 weeks from you signing up with Henley Business. However, circumstances may dictate that it takes a while longer. Whatever the case, we can guarantee that we respond to your enquiries immediately, and are always on hand to keep you up to date with the progress and developments of the sale.

There is no best time, however, it is most convenient for the smooth running of the process for the sale to take place towards the year end, so that the most recent accounts are available and up to date.

We acknowledge that you have staff that need to be looked after and we will endeavour in our negotiations to have them at the forefront of our minds when dealing with your sale. Most purchasers will want to acquire the services of your staff and you can make it a priority with us when we attempt to find you a suitable match for your practice.

Henley Business Group is well acquainted with professional and successful property businesses around the UK and will willingly broker a deal between yourselves and them regarding your business premises should the buyer be unwilling to purchase the buildings.

We use a variety of online and offline methods to market businesses, as well as interrogating our own database for suitable matches. We have an extensive list of qualified buyers in all sectors. We can also arrange a bespoke campaign for a business where we feel it would be beneficial.

A retiring entrepreneur needs to consider the demand in their area and also the state of the business. A further consideration for is whether they wish to continue working after the sale as a consultant, which could be beneficial to the overall terms. As a rule of thumb it is advisable to start planning an exit strategy within 5 years of the planned retirement date. It's never too early to speak to agent and it should not cost you anything.

Staff are very often the best people to sell your business to as they know the business intimately, and are familiar with your modus operandi. Nonetheless you should still treat it as a formal sale as if you were selling to strangers. We would advise that you use a broker to ensure that you strike a deal that is optimised for both parties, although you can expect to pay much less since you've done the hard part already yourself - finding a suitable buyer.

You are best advised to use a professional broker as an intermediary. It is much easier to stand firm or extract concessions for somebody who is at "arm's length" and emotionally detached. As you have done the hardest part, finding a buyer, the fees will be much lower but you will also benefit from their experience in selling quality businesses.

The best way to find out is to spend time analysing your business, either on your own or with a colleague or consultant. Very often the owner is too close to the action to notice if there is a problem, but an outsider, especially an experienced agent, will spot it right away. Typical red flags that buyers will look for are high staff turnover, rising debtors, steady client attrition. These things are so easily overlooked in the rush to sell, especially if you are in a hurry for the exit.

If we do not achieve a sale we don't earn our commission so it is in our interest only to introduce parties who appear to be a good match and can be reasonably expected to complete the deal. Obviously much depends on the chemistry between the seller and the buyer but we do our best by making all buyers complete a comprehensive questionnaire prior to allowing them to meet a seller.

The fees are typically a mix of a down payment and a percentage of the sale proceeds. All agents also charge an upfront commitment cum marketing fee as a lot of work goes understanding your business, your needs and preparing the confidential information memorandum. Do I have to commit to a single agent?

Each agent will have different contractual requirements but for it is quite reasonable for the agent to request sole rights.

Buyers are usually interested in the quality of the business rather than exactly who is retiring at what point, although it is possible that they will set a time limit on how long they wish you to stay as a partner.

Anything can be agreed and of course the contract would reflect the fact that there is a partial sale now with the remained at a later stage. Sometimes a remaining director will sell their entire stake at the time the retiring director leaves and remain on a salary or profit share, and on other occasions the remaining director may sell part of their stake now and part when they themselves retire.

The important thing to work around is what works for everybody and then the contract will be drawn up accordingly.

It is quite common for business owners are ready to retire from the stresses of business ownership but not yet quite ready for a full time on the golf course to stay on and manage the company for the new owners. Ideally you will be protected contractually but not unfairly to your disadvantage, and will continue to take home a good remuneration package whilst banking a lump sum. Most likely you would be incentivised to help them grow the business, which is typically their aim.

You need to be comfortable with the fact that you will be transitioning from self-employed to employed and understand how this may impact your lifestyle. Your age and physical state will play an important part of this decision too.

Our best advice is always to display the skeletons in your cupboard rather than let them be found. Any buyer worth his salt will do a thorough due diligence and will more likely than not spot the problems. Your trustworthiness will take a nose dive at that point, as you have been ‘found out’. And even if they don’t notice the issue before the sale, they may well find it later, and there could be some serious legal issues to deal with at that point.

If you are up front about the problems, it allows buyers to take a view of the situation. We may also be able to advise you on how to resolve the issues before putting your business up for sale.

Buyers range from serial entrepreneurs to large multi-national firms. Many larger businesses are acquisitive by nature and constantly on the lookout for smaller business that would fit into their business model on a strategic basis. The biggest businesses grow by acquisition as it is much faster and often requires less investment than doing it organically. Each buyer has a different motive and although they are all out to make money the best buyers recognise a quality business and will pay the correct amount for it.

“Friends and family” – the often heard phrase sound innocuous and usually crops up on phone tarrifs to enable free calls to selected numbers but in the harsh world of business the practicalities selling your business to “friends and family” can be something of a hornet’s nest.

Why exactly are people wary of doing business with friends and family ?

Selling your business is more than just giving “mates’ rates”.

How will you resolve problems that arise during the business sale process, whether it is an unpleasant discovery in your accounts, their struggle to raise cash and asking you to defer payment or late in the day begging you to stay on because they’ve realised they have bitten off more than they can chew?

The pitfalls are myriad.

Every person has their price – but what price do you put on a relationship ?

Warranties and indemnities are very important when selling your business and need to be considered carefully. A warranty is your express declaration about certain matters. For example you may be asked to give a warranty that there are no claims lpending against the business. An indemnity states that if certain events arise you will make good any loss suffered by the buyer. Always be frank and open in discussions with your solicitor about how to deal with such request from business buyers.

Each deal is different. Some have an element of deferred consideration , perhaps 25% that may be contingent upon certain levels of sales being maintained or reached. Typically the majority of the cash is paid at the time of sale but often a small amount is held back for 3 months until debtor and creditor payments have washed through the accounts.

Cash within the business belongs to you so you could take it out prior to the sale or you could include it in the sale as working capital. Discuss this with your accountant or solicitor as there could be tax issues that influence your decision.

This is either valued accurately or a figure is agreed upon between the parties if it is more convenient.

As most business sales in the sectors we cover are limited companies these debts "belong" to the company and are dealt with post-sale. An adjustment is usually made 3 months after the business sale to reflect any bad debts.

Although their employment rights are protected under TUPE regulations, loyal and longstanding staff who helped you build the business should also benefit from your windfall. Apart from being the right thing to do morally, it is crucial that they help the buyer of your business succeed in their purchase so as to minimise any comeback against you. If you build in a reward that is phased over time you are in essence buying peace of mind for yourself. As usual it pays to take professional advice to structure any payments correctly, both legally and from a tax perspective.

That depends on the nature and size of the customer and their importance to the success of the business. If you have good reason to suspect or know for a fact that a customer relationship will not survive a sale you should talk to your solicitor to discuss the ramifications and also how to disclose this to the buyer.

You can expect to pay an up-front payment that covers the costs of marketing, followed by a percentage that is contingent upon a successful sale of your business.

That depends on how many prospective buyers are circling your business and the strategic fit that your business sale will be to them. It may also be influenced by IP that forms part of the business sale. You only have to read the financial pages in the newspapers to see that valuations can run well ahead of themselves. It is important not to be blinded by the headlines and understand early on what your business is really worth - but it's nice to dream.

We check each buyer to ensure they are who they claim to be and we ask them how they intend to fund a purchase. Whilst we take reasonable steps to check that buyers are bona fide, as we have no desire to waste our time as well as yours, you would be expected to make your own enquiries and question a prospective business buyer yourself when meeting them. We do understand the importance of preventing industrial espionage by competitors but it is hard to guarantee this does not take place. We will make you aware of a prospective buyer's identity early on for screening purposes. Usually the business seller had greater knowledge than the business transfer agent as to "who's who" in their own marketplace.

Being a specialist is a double edged sword. It may limit the number of potential buyers and can often take much longer to sell but on the other hand it could make your business very attractive for a buyer seeking your know-how or customer list, perhaps as a strategic move to control supply of a rare product or process.

This situation is not uncommon but it is a very difficult place to be. The choice is essentially whether to close down and accept nothing, give it away in order to walk away from the stress, cut the price drastically and run, or attempt to turn it around. However difficult things may seem it is well worth consulting with your accountant in the first instance, as a fresh set of eyes could well come up with a solution that you had not considered. It is worth remembering that just because you cannot see the value in your own business does not mean that others also do not.

From a business aspect it could well make sense to sell one division and continue running the other, but it could lead to a myriad of legal and accounting complexities which slow the process down and increase the cost of making the split. In some cases it may simply be too complex to be cost effective but as with most things in business a solution or a workaround can usually be engineered.

It may well do. It is vital that any claim is easily recognised and quantifiable so a buyer can make an informed decision early on. Don't sweep it under the carpet as it will be even worse to handle when it is discovered, in all likelihood destroying any trust and goodwill that you may have established with a buyer, fatally undermining the deal. If it comes to light afterwards you will probably be on the wrong end of litigation from the buyer.

 

Normally this is the case.

You will need to check the small print in the contract as soon as you start thinking about selling your business. Sometimes you may need to go beyond the small print but it is a commercial decision as to whether and when you make other parties aware of your intentions to sell your business.

The first point of reference should be the company's articles which should determine whether or not you have to offer your co-director first option to purchase your shares so you can retire easily. If he or she does not have such pre-emption rights or cannot raise the finance you are entitled to offer them for sale to an outsider. This is where it can become tricky as on the one hand you wish to retire and bringing in outsider will very likely alter the relationship with your co-director, and although you are retiring you may wish to avoid this. On the other hand it may also make the sales process more complex as your co-director could be "difficult" when meeting prospective buyers. These situations call for a solution "out of the box" and you may have to come a compromise solution that involves taking deferred consideration and trusting your co-director to run the business solo, but there is the advantage of avoiding the often traumatic sale process involving an outsider. Similarly it may be possible sell your stake to members of staff. Even if selling to insiders don't skimp on the legals !

If you are comfortable working with the investor and don't mind working to make profits for third parties it is definitely worth looking into. As ever, the devil is often in the detail. In such circumstances you should do your own due diligence on the investor even if you know them, and the usual advice of doing the legals properly still applies This is often an ideal route to retiring from business as you have been paid out and you avoid a potential "cliff-edge" situation or gentle decline in value in your twilight years.

Investigations don't happen for no reason so it is better to prepare your version of events at leisure and present them to the buyer at an appropriate stage in the negotiations. It doesn't mean the end of the sale of your business but failing to make them aware may well do, as they are likely to discover it during the due diligence or during legals. Building and maintaining trust is paramount and early disclosure will go a long way to achieving that.