Tag Archive | "business advice"

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HOW TO SELL A BUSINESS


By Adam Bernstein

We’ve seen the sale of plenty of family businesses in the aftermarket over the last couple of years. It isn’t just down to the major buying groups stamping their feet either, for all, there comes a point when it’s time to ask whether the business should be sold. The question for most is, how?

According to David Emanuel, partner at law firm VWV and head of its Family Business team, the prime reasons for selling are retirement, the need for investment and no one else to take over.

Take the first – retirement. As Emanuel notes: “for many business owners, a large proportion of their personal wealth may be tied up in the business. Some are able to take profit out during their working life to buy homes and build up pensions. But many need to crystallise that value to fund their retirement.”

Next comes the need to grow the business. As time progresses, some owners ask whether they have it in them to take the business to the next level. Clearly, if a business is not the right size for the market it will not survive; looking for someone external (and usually bigger) to buy out the firm can be a solution which also allows the owner to realise the value in their business.

A variation on this means external investment, for instance private equity investors, who take a stake in the business with a view to exit within three to five years. From Emanuel’s perspective, “this offers the current owners the opportunity to build significantly higher value with external investment while postponing the exit.”

But what if there is no internal succession plan? Emanuel frequently sees family owned businesses wondering whether the next generation want to take the business on: “For many the family is a strength and a USP, and the thought of passing the business to the next generation is attractive. But in practice, successful transfers between generations are rare.”

But few last. A 2015 Economia report, How to maintain a family business, suggests that in the UK only 30 percent make it to the second generation and around 12 percent to the third.

Opportunity Knocks

Sometimes an offer comes in at the right moment so that selling becomes an option. What do you do?

Emanuel’s first response is to take advice.

“Many businesses will probably know who is likely to be interested in buying them, and in some cases informal contact, particularly where there are personal relationships with potential buyers, can sound out interest.”

But he offers a note of caution: “Do not underestimate the potential adverse reaction of staff, customers, and suppliers to rumours of a sale. Maintaining confidentiality for as long as possible is a key feature of a successful exit.”

The message is clear: Seek professional help from the moment you decide to sell. Accountants, solicitors, or specialist corporate finance advisers, can all help formulate a plan, including a strategy for confidentially marketing the business, advice on valuation, and preparing the business for sale.

Sale processes

The next stage is the actual sale which Emanuel says comprises four steps.

“The first,” he says, “is to market the business else no one will know that it’s up for sale.” He says that the firm’s accountants or specialist corporate finance advisers will help put together a sales memorandum and circulate this (on a no names basis initially) to potentially interested parties.” A Non-Disclosure Agreement should be part of the process.

Once a buyer has been chosen, the next stage will be to agree the outline commercial terms of the deal and timescale – “Heads of Terms”. Emanuel describes these as “non-binding in most respects but they provide a framework for the negotiation of the deal from which the parties should not normally stray other than in exceptional circumstances.”

And then there is due diligence – mentioned earlier. “This,” says Emanuel, “is the process by which the buyer seeks to find out about the business, its assets and liabilities, trading relationships and employees.” Experience has taught him that sellers often underestimate the amount of work this generates.

The penultimate stage is the sale agreement where the main contract for the sale will (normally) be drawn up by the buyer’s solicitors to be negotiated with the seller. In practical terms, Emanuel says that most of this will deal with risk apportionment – “who is liable, if for instance, there is a hidden tax liability, or any employee makes a claim after completion for something that happened whilst the seller was in charge?” These issues are, he says, dealt with through a process of warranties – in effect, guarantees.

And lastly comes completion where the documents are signed, the monies are paid, and the business transfers.

In the End

With any complex process the sale will usually take several months from its starting point and involves a huge effort. But as Emanuel has seen, the sale can mean that “owners often have mixed feelings about leaving behind the business they created and have run for years.” His suggestion is to think about what is coming next rather than what has been left behind.

 

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Is it time to revisit your business plan?

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Is it time to revisit your business plan?


172273013Don’t coast. Use a business plan to keep your company on track for reaching all your ambitious objectives. Matthew Moore from business website thehub.tips tells you how.

If business is ticking over nicely, purring like a mid-range Mondeo, it’s all too easy to take your foot off the gas and coast along perfectly pleasantly.

Doing so isn’t without peril, however, and at risk of stretching my car analogy, the only way to deal with unexpected bumps on the road – and to have your company roaring like a Lamborghini – is through spending time working on your business, not just in it.

A business plan should be much more than a document used to navigate the initial stages of starting up, before being filed away.

Instead, it should be a clear and concise working document, allowing you to take a diversion if necessary, but always pointing you in the direction of travel.

It’s also not something to draw up simply when you need to borrow money. In fact, whether you need finance or not, revisiting your plan can be the smartest move you make.

Refining, tweaking and challenging the details can keep your team focused and heading in the right direction. And – crucially – it will make sure you’re all going there together.

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Matthew Moore recommends that you regularly review your business plan

Whether launching a new product line, or exploring whether to expand into a different market, it’s important to keep referring to a business plan.

Do your new ideas meet the business’ long-term objectives? For example, if you specialise in parts and components for classic cars, how will your customers react to you branching out into caravan cleaning products?

Will reassigning resources damage existing business? Don’t take your best salesman off the forecourt and turn him into a backroom boy. Do the figures stack up?

Update your plan whenever your business encounters change, so your goals and strategies remain relevant.

If nothing major crops up, diarise at least an annual review to help you keep in touch with your over-riding objectives.

When you do dig it out from that filing cabinet and dust it off, remember it’s the finance section that rules the roost.

Have a look at the forecast you set out – are the figures as expected? Replace projections with actual figures and examine how this affects your cashflow and profit forecasts.

Map out cashflow in absolute detail for a year ahead and outline forecasts as well as you can for years two and three. A quick Google search should bring up plenty of pre-populated spreadsheets that will do all the hard sums for you – and highlight potential weakspots in a flash, months or even years ahead.

This will give you the chance to react quickly rather than being blindsided a couple of months down the line by a sudden cash crisis.

Advance warning of a financial avalanche means you can start trimming the fat and exploring ways to make your cash go further – before it’s too late.

If you’re the cautious type, consider running three sets of projections – the best-case scenario, a middle ground and a tricky year.

Broadly, expect the best, but plan for the worst. Get the numbers down on paper (or screen), and you’ll have a clear target to aim for. And if you have no goal, how do you know where you’re going?

Before you embark on revisiting your business plan, be aware that this exercise will cause change and inspire action. You would have originally created a plan based on a set of predictions and assumptions, thrown together to make all the edges fit. Now, in the future that you guessed your way to, it’s time to make sure the big picture make sense. So be prepared to be flexible and adapt to whatever is thrown your way.

Once you’ve worked your way through it, filling it full of fresh facts, time-sensitive figures and a renewed sense of direction, you need to infect all the relevant people with your enthusiasm.

Whether it’s your board of directors, the bank, your management team or your whole staff, you need them on-board and raring to get going.

If you think of the business plan as a roadmap, show them how far you’ve come, outline what great news the direction means for them and make sure everyone has clear signposts to follow. You’ve checked your bearings, now it’s time to carry on marching forward.

For more business advice go to thehub.tips. The Hub was created to strengthen relationships between Johnston Press and local businesses and offers advice, resources and inspiration to SMEs.

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