How to get full business selling value

Much has been written about business and exit planning – but business selling is like selling a house. You don’t have much experience and can go horribly wrong as a result. You improve your prospects when you ‘know the ropes’ and are being well-advised.

‘Maynard’s three immutable laws of Business Selling’

You won’t find them in any book, but they all occur in some way during a business exit.

The Law of Shrinking Timescales:

The closer you get to selling your business, the more impatient and optimistic you become. Very often, business owners say that they are not in any great hurry, but as soon as preparations move ahead and negotiations commence, you may start thinking: ‘What are we waiting for? Let’s get on with it!’

There are great dangers in trying to accelerate the process. It can suggest that you are insensitive to the deliberations of the prospective buyer. It could also imply that you are hiding something. A suspicious buyer will reduce his valuation.

You must earn trust by not rushing things and by giving prompt answers to all questions and challenges, even if you feel that the buyer is ‘trying it on’.

If a potential buyer appears to be dragging his heels, an independent adviser can intervene, so that you do not jeopardise your standing in the process.

Some unintended mess-ups:

  • Company and Management Accounts improperly presented with mistakes
  • No record of regular Board or Management Meetings
  • Incomplete/inaccurate records of current shareholders
  • No updated order pipeline reportage
  • Infrequent/inaccurate P&L/Balance Sheet/Cash Flow accounts

 The Law of Increasing Avarice

The closer you get to selling your business, the greedier you become. It is human nature, isn’t it? Everything seems to be proceeding well; so why not go for a bit extra on the sale price. ‘After all, he’s not going to go away now, is he?’

Whenever that happens, there is a high risk of pull-out, so if you have good cause for re-opening negotiations, you must carefully weigh it against the risk of losing the buyer. And if you still feel justified, you should discuss with you adviser the best way to do it. Great care is required to avoid mishap.

A failure at this point will almost certainly result in a lower price next time around.

 Some unintended mess-ups:

  • Absence of clear justification for re-opening negotiations (e.g. improved forecasts)
  • Inadequate communication of request to re-negotiate the offer price
  • No clear sense of what higher valuation would be acceptable and why

 The Law of Emotional Wrench

The closer you get to selling your business, the more likely you will feel pangs of regret and insecurity. What will happen when your business has gone? Will the staff be well looked after? What will you do next? ‘The business was my only interest in life and now it is about to go….’

All entirely natural and understandable reactions, for which it is vital to prepare. For example, it may be possible to agree certain assurances on staff retention with the buyer. And you should start thinking about post-retirement activities where your skills and experience would be most welcome. There are plenty of choices – if you just take a step back and think about them.

But recognise one thing: once the business has gone, its future development belongs to others and you must move on. All being well, you should be able to retire comfortably and make new choices. After all, what is the point of working all your life if there is no benefit to be derived now?

Some unintended mess-ups:

  • Reluctance to communicate to staff what is going on
  • Staff look bewildered or unwelcoming when prospective buyer visits
  • Tendency to stall negotiations because of ‘fear of the unknown’

There are many examples of how the business selling valuation can be eroded, but they all tend to fall under one of the above core headings. Proper attention to these will enable you to maintain your asking price and resist downward pressure.

This is where an experienced and understanding business selling adviser makes a difference. It is not just about getting the process right.

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