BusinessBroker.ie

Most people assume selling a business is similar to selling a property but the reality is they are completely different processes.   A property’s value isn’t damaged by putting a “For Sale” sign over it and placing a picture of it in the estate agent’s window with an asking price of €500,000.  Do that with a business and see how quickly you lose your customers, how quickly your key staff are poached by your competitors, how quickly your suppliers will reduce or completely withdraw your credit facilities and how quickly there will be no business at all left to sell. 

Business Broking is a profession dedicated to the confidential sale of small to medium sized privately owned businesses which in practical terms means businesses with annual sales of between €500,000 and €10m.   It is not a widely known profession here in Ireland because traditionally most family owned businesses were passed down to the next generation or closed altogether when the owner decided to retire.  

As the education and career options available to younger generations have increased the number of businesses being passed down the family line has decreased.  This has resulted in more and more business owners deciding to extract the equity value built up in their business through a confidential sale of their business when the time comes to exit or retire.  That is where a professional business broker can add significant value by helping the business owner prepare the business for sale, set an asking price which the market will actually pay, confidentially market the business to financially qualified buyers and negotiate the best possible deal for the business owner by engineering a competitive bidding process. 

To give you an idea of whats typically involved when I confidentially sell a clients business I have outlined below the key steps undertaken to ensure a smooth and successful sale.

 Initial consultation

The purpose of the initial consultation with the business owner (seller) is to establish whether there is a basis for establishing a successful working relationship together.  Understanding the sellers motivations and objectives is a significant step.  We will be working very closely together so it is essential I understand the seller’s expectations and the seller understands exactly whats going to be involved in selling their business.  I clearly outline what I will be doing, what he/she needs to do and how we are going to get to the finishing line together.  To achieve the best outcome, we need to be on the same team working towards a common goal.

Formalising the relationship

If having established a basis for working together the seller wishes to move forward with a sale of their business we then sign an engagement agreement which outlines the terms and conditions of our working relationship for the duration of the business sale.

Consultation and communication

Selling a business is usually a once in a lifetime event.  If the seller doesn’t know what to expect they can become stressed or anxious.  To avoid this I use a jargon free consultative approach from the very beginning to keep the seller fully informed of the process we are following, the progress we are making, any issues or obstacles we encounter, what is required from the seller along the way and the role their solicitor and accountant will need to play.

Calculate a market valuation for the business

Correctly pricing the business is absolutely essential.  Placing too low an asking price on a business can leave money on the table whilst over valuing a business is the single biggest reason so many businesses fail to sell.  With fifteen years business valuation experience to draw on and access to an international database of 30,000 previous business sales across all industry sectors I will calculate a target selling price for the business. 

Prepare the documentation

After carrying out comprehensive analysis of the business two key documents are prepared:-

1. A one page Confidential Business Summary which contains a brief description of the business. This document is used to market the business but does not identify the business name or location in any way.  
2. A detailed Business Information Memorandum.  This document contains detailed financial and operational information about the business and the market it operates in and is only issued to financially qualified buyers who have signed a confidentiality agreement and demonstrated their bone fide interest in acquiring the business.  It is compiled and submitted to the seller for their approval prior to being finalised.  This gives the seller control over the information disclosed to prospective buyers. 

Prepare for due diligence

Due diligence is the process whereby a buyer who has had an offer accepted (usually “subject to contract and satisfactory due diligence”) is given an opportunity to examine the financial, legal, operational and other records of the business.  This exercise is usually carried out by the buyers’ accountant and solicitor and whilst they are entitled to ask whatever questions they want most questions can be anticipated and prepared for in advance.  I therefore provide the seller with a typical due diligence list and advise them to gather the requested information into a file so that when the buyers’ advisors ask for it we have it ready to hand.  There are two advantages to preparing for due diligence in advance:-

1. If there are any issues relating to the documents required in due diligence they are flagged early and the seller will have an opportunity to address them before actual due diligence starts.
2. It creates confidence in the mindset of the buyer when documents asked for in due diligence are readily available.  Delays getting copies of leases, employment contracts and financial information etc creates doubt in the mind of the buyer and can scupper what would otherwise be a successful sale.

Establish and implement the marketing strategy

The marketing strategy I adopt will depend on the business I am selling and the types of buyer most likely to be interested in acquiring that type of business.  It is crucial that the strategy implemented is appropriate to the business and that it captures the interest of all possible buyers. 

Identify and qualify buyers

Selling a business is a pro active process.  Some buyers will respond to marketing and advertising but others have to be more actively targeted.  It takes a focused effort and tenacity to ensure the business is exposed to all potential buyers.  My role is to find a buyer who has a commercial motivation to purchase the business and the financial ability to complete an acquisition.

Advising buyers

Like the seller, the buyer may not have been through this process before so I frequently spend time with potential buyers discussing the steps involved in acquiring a business.  All potential buyers must sign a confidentiality agreement and confirm they have the financial ability to acquire the business before they are given any confidential information about the business. Once a buyer has reviewed the information memorandum and met with the seller to review and discuss the business I invite them to make a conditional offer for the business subject to contract and satisfactory due diligence.

Negotiating the terms of sale

It is rare that a buyer will make an offer which is immediately acceptable to the seller.  It may take several offers and counter offers to hammer out a price and terms which are acceptable to both the seller and the buyer.  Once a deal is agreed the principle terms and a timeline to completion are summarised in a heads of agreement which is signed by both the buyer and seller.  The heads of agreement forms the basis of a binding purchase and sale agreement to be signed once due diligence is complete. This can be a particularly stressful stage for both buyer and seller so it is critical to keep good lines of communication open and things moving along in accordance with the agreed schedule.

Iron out problems during due diligence

Due diligence usually starts straight after the heads of agreement is signed and will typically take two to four weeks to complete.  The purpose of due diligence is to give the buyers’ advisors an opportunity to examine the records and operation of the business to ensure that the business their client is acquiring has no legal, financial, operational or other issues of concern which have not already been declared to them. 

I have yet to see a business which didn’t have some sort of skeleton in the cupboard or some issue which the seller believes is trivial but the buyers’ advisors believe is a deal breaker.  My role at this point in the process is to act as an intermediary between both sets of advisors and help iron out any issues that arise.  Solicitors and accountants are retained to protect their client’s interest and reduce the amount of risk their client is exposed to which frequently leads to a Mexican standoff.  My objective is to seek commercially sensible compromise between the buyer and seller so the buyer achieves his/her goal of acquiring the business and the seller achieves his/her goal of selling the business.

Completion and payment

Once due diligence is complete to the buyers satisfaction the final step in the process is to for the seller and buyer to sign a binding sale and purchase agreement which reflects the terms agreed in the heads of agreement and any amendments agreed as a result of issues arising from the due diligence process.  Once the sale and purchase agreement is completed the seller receives the agreed consideration and the buyer becomes the new owner of the business.  There can frequently be a transition period where the seller works with the buyer after the sale has completed to help the buyer take over the running of the business and there will likely be some deferred payments due to the seller contingent on a successful handover and/or the business hitting certain pre agreed targets after the handover. 

Follow-up

My role finishes once the sale has completed and ownership of the business has transferred from the seller to the buyer but I remain available to the seller if any post sale issues arise which I can help resolve.

admin Uncategorized acquisition, business brokerage, buy a business, exit planning, intermediary, merger, retire, sell your business, succession planning