Many business owners can agonise for months and months, spending hundreds of hours doing research before buying the right piece of software or equipment, often where the cost is less than a few hundred pounds.
Yet when it comes to selling their business, these same owners won’t spend anywhere near the same amount of time to research the sale of what is arguably the most valuable asset they own. And most likely a larger and more important decision.
Think about it, when you started your business did you give much thought to how you might sell it?
If you've done any research so far, you've probably realised that instructing an experienced broker is the logical first step. However, not all business brokers are the same, or operate to the same standards. In fact, most aren't even qualified. So how do you make an informed choice?
Google the term “business broker” and you’ll see a mind-boggling array of different firms all offering what looks and sounds like the same advice or service.
Lots of talk of maximised value, leveraged and optimised synergies, global reach and driven transactions. All great, but will they actually sell the business for you? Getting the horse to water is one thing. Do they have the myriad of skills needed to close off a sale?
You can, of course, read the reasons why you should hire us. It will give you an insight into what you should be looking for. Whilst we might not be for you, if you plan properly the advice here might just save you time and money. Six months from now isn't the time to realise you've made a massive mistake.
In the meantime, here's a brief guide to inform you of what to consider before you instruct a broker.
What kind of businesses have you successfully represented?
Can a broker provide testimonials and credible proof of success? Not made up or anonymised ones (quite common). Importantly, does the broker have industry knowledge, the contacts as well as the technical competence? Do they have the experience to get a deal done? Can you see them representing you, fighting your corner in the boardroom opposite highly skilled negotiators and going the extra mile if need be?
What can I expect from you?
A good broker should be able to outline exactly how they can help you and what their service entails. Direct and open discussion with your broker, about expectations and other issues, is critical in selling your business.
Who will be doing the work?
Make sure you understand who will be doing the work for you. Many larger national broking firms employ roving salesmen whose job is to meet owners, hype the business expectations and value in order to gain a mandate.
A slick salesman who signs you up only to hand you over to a revolving door of account handlers and call centre staff is often the result. This is not ideal, and you should know who's doing the work on your behalf. They should be experienced, accountable and have their interests aligned with yours, preferably by remuneration based on results delivered.
Who will be doing the work?
What methods will the broker employ to get you the right purchaser? Will it be all encompassing and designed uniquely to you? If it's just an advert on a selling website then you'll likely be disappointed with the results.
Be wary of being told that there are untold foreign buyers chomping at the bit to buy your business. Unless you offer something truly unique or special, like a patent, this is unlikely to be the case. If you are on someone's acquisition radar, they are likely to approach you directly or via their agent or UK representative.
What am I worth?
Get the business broker to determine a ballpark valuation of your business before you sign instructions. This is key. If your price is too high, or unrealistic, buyers will simply not be interested. Question why the broker has valued the business the way they have. Do you agree without bias? Can you see a buyer saying "yes, that makes sense let's find out more"?
A common and seductive sales pitch is to be told that there are buyers, especially large corporates, who, via massive economies of scale, will happily pay 10x, 15x, even 20x earnings to you. More than British Airways or other stock listed company?
There is a natural inclination to be sympathetic and to want to hear that your life's work is worth far more than you could ever of imagined. This is akin to Hans Christian Andersen's Emperor's New Clothes (pictured) and should be scrutinised closely and justified with hard facts and good old-fashioned common-sense.
Another familiar line often heard is that most brokers or accountants use only “conventional” or “traditional” valuation techniques. What does this even mean?
Instead, their valuation is only based on the future earnings and cost savings that will deliver a dream price based solely on the future. Nice. We are not saying the future isn’t important, or plays a part, as it clearly does. However, without concrete and consistent proof or justification, this is meaningless. Especially in the eyes of the buyer and his advisers. But a profitable soundbite for the adviser.
Remember, if it sounds too good to be true, it probably is. Ask what the valuation is based on? Have they overvalued your business in order to gain the instruction? Don't be afraid to, in fact, do, get a second or third opinion.
What fees are involved and what do they cover?
Understand this in advance, so both you and the broker are clear what the terms are and can focus on selling the business. An agreement should cover how long the engagement is for and the general terms and conditions. Beware the small print and sneaky hidden extras.
How do you protect our confidentiality?
Make sure the broker has a suitable confidentiality process in place to safeguard your position.
Are you a member of any trade organisation?
Membership of a professional body such as the ICAEW (Institute of Chartered Accountants in England and Wales), the ICAEW's Corporate Finance Faculty, the International Business Broker Association (IBBA) or another trade group can mean operating to a strict business code of conduct, ensuring your engagement is handled professionally, confidentially and efficiently. A professional qualification would also suggest someone who adheres to ethical principals.
How will you keep me informed?
The broker must be responsive to both to you and your purchasers. Momentum in a deal is vital and time can easily kill a deal, so avoid unnecessary delays. Find out how the broker plans to keep you informed.
We wrote some further information on business brokers and how they operate for Businessesforsale.com. You can view those articles here (opens in new window):
With lots of choice and options...
...here's an easy one, call Lucas & Weston.
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Want more information or want to discuss hiring a broker? Call me NOW on 0845 644 0266 from the UK (local rate charged). Callers from outside the UK, please dial +44 (1225) 460 777.