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FREQUENTLY
ASKED QUESTIONS
Sell your business……Retire
to the Spanish villa you bought ten years ago, where you never spend enough time
because you have a business to run. Develop your property portfolio. Invest in a
property for your children. Spend more time with your family. Take that cruise
around the world. Bring down the golf handicap. Complete the university degree
you started twenty years ago but never finished. What about not having the
responsibility and constant demands of running a business?
Selling a business can be
one of the most financially rewarding experiences you ever undertake. It can
also be the culmination of a lifetime’s work. The process is time consuming and
demanding – with pitfalls all around. You want to get it right. Getting it
wrong, costs considerable time, money and hassle. It can also do serious damage
to your value.
Imagine the disappointment
and frustration when nothing happens let alone the delay to your future plans.
This is of course all avoidable if you take the time to start off on the right
footing. Whether you want to sell your business today or in a few years’ time,
you can never plan early enough. Maybe you already know what’s involved? Maybe
you’re curious? Perhaps you’d just like to ask a few questions?
Here are a series of
questions and answers to the most frequently raised topics. If there is any
question you can't see an answer to please contact us and we'll be delighted to
talk with you and address any queries you might have.
SELLERS
Sales process…6 steps…
No two deals are the same.
However, here is a general guide to what's involved.
1) Registration
This is the stage at which
you instruct us to sell the business. Our terms of engagement are agreed in
writing and we commit to selling your business at a price you are happy with,
one that is consistent with the marketplace.
2) Documentation
You would provide us with
all the necessary documents and data we require to sell the business. Please
note that all your documents will be kept confidential until we have your
permission to release them to an interested party.
3) Screening &
introduction
We present your business
to potential purchasers once we have gained an insight into what they are
looking for. Each purchaser is screened and has to sign a confidentiality
undertaking. Once the purchaser has been approved by you, we'll discuss the
various components and merits of your business with them.
4) Offer
Once we have received an
offer, we will immediately present it to you for your consideration. You may
decide to accept the offer. Alternatively, you may wish us to draw up a
counter-offer. At this stage most offers will be subject to contract and due
diligence (see below). We will negotiate with determination to get you the best
deal possible, ideally in a competitive environment with several keen
purchasers.
5) Due diligence
The purchaser will want to
check legally and financially that the business is all it has been presented to
be. This is the most important step in a successful sale. We will maintain close
liaison with the solicitors and accountants of both parties throughout to keep
your deal on track.
6) Completion
A completion date will be
set where all the parties sign the final contract. Funds are exchanged and the
business is transferred. Congratulations!
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How much is my business worth?
It's the first question
we'd ask. A well known rule of thumb is ’as much as a willing buyer is prepared
to pay for and a willing seller is prepared to sell for.’ That said, business
value can be determined by many factors. These include cash flow, sustainable
profit, asset value, financial history, location, competition, customer base,
ongoing management and the economy
What you think your
business is worth makes little difference, and potential buyers will place
little credibility in a value arrived at by your accountant or bank manager.
Only the marketplace can decide its true value. Incorrect value and unrealistic
vendor expectations are the main reason for the failure of most business sales.
A buyer will simply dismiss your business if it is not priced reasonably.
At CardPATH Ltd we are
dedicated to selling businesses every day. We will do all we can to help you
establish a viable selling position.
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How are businesses valued?
There are many ways to
value a business and basically the worth of the business hinges upon how much
profit a purchaser can make from it, balanced by the risks involved. Previous
profitability and asset values are starting points but intangible factors such
as key client relationships, can provide the most value.
The main valuation methods
are based on Assets - if your Company has substantial tangible assets;
Price/earnings - for Companies making substantial profits; Entry Cost - values a
business as if starting a similar one from scratch; Discounted Cash flow - based
on future cash flow, particularly where companies have invested heavily and
Industry Rules of Thumb - use of an established standard formula for a
particular sector. At least two of the above methods are used to arrive at a
value.
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What is "book value"?
The "book value" is simply
the net asset value after all liabilities. In other words if all the debts were
paid off and the cash and assets within the Company were used to pay for them,
the remaining amount would be the "book value" and is in effect, the equivalent
to the "Shareholders funds".
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Should I buy the assets as well?
There are two types of
purchases: Assets, Name and Goodwill and a Share sale. In both cases, the assets
go with the Company but in certain cases, some of the assets may not be required
by the purchaser and can be discounted from the valuation or asking price, as
part of the negotiations. It may be that the purchaser may not want some or all
of the property, or in extreme cases, even planes or yachts!
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How is goodwill valued?
Goodwill takes into
account the years of trading and the building up of key client relationships. A
Company with an excellent trade name, solid reputation for quality and
reliability and substantial key client accounts will have a far higher
“goodwill” value than one only recently started up. Although there is no exact
formula for goodwill, a total of three times net profit is often used. Be wary
of Companies showing high levels of Goodwill, in an effort to balance their
liabilities!
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Things to think about
Here is a list of things
to think about if you are serious about selling your business. We are happy to
talk through any of the issues listed.
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Why Are You Selling?
It is important to have a
credible reason for a sale, one that a purchaser can understand and feel at ease
with. It also helps us structure the most advantageous transaction. Reasons for
a sale can include:
Retirement
Ill health
Trading difficulties
An unsolicited approach
Matrimonial settlement
Director / Partner
disagreement
Change of direction
Advantageous tax
circumstances
Other business interests
Business has grown above
the management experience level
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Price Expectations
Are your price
expectations realistic? How much would you pay for your business? Educated
buyers are smart and will only consider realistically priced businesses
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Valuation
Goodwill
Maintenance of profits
Market multiples
Return On Capital Employed
(ROCE)
Add backs for personal
ownership
Net Asset Value (NAV)
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Method of Payment
Most buyers may want to
defer some of the consideration. Businesses which ask for 100% cash usually
receive less than their asking price. Many buyers will be suspicious if you
don't accept a deferred payment as it suggests a lack of confidence in your
business. That said, all deals are unique and structure depends on individual
circumstance.
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What Do Buyers Look For?
Remember, being able to
supply correct management information in a timely fashion shows that you are
organised and efficient. You don't want buyers to lose interest because basic
information isn't to hand. A buyer and his advisors will probably look for or
raise the following issues so they can fully understand your business:
3 years accounts. Monthly
management accounts, if in current year
Business plan
Company literature,
brochures etc.
Company information,
shareholdings
Asset inventory
Staff: salaries, ages, job
titles and length of service
Reason for selling
Ongoing management
Profit record
Strong cash flow
Stable margins
Good management controls
Good spread of customers
Up to date contracts or
agreements
Potential for growth
Position in the market
Strong brand identity
Price expectations
Tidy well maintained
appearance
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No Surprises
Most adverse situations,
such as landlord/lease problems, outstanding loans, tax arrears, unfavourable
equipment leases, health and safety issues, other regulations, and staff
problems can be overcome providing they are disclosed in an up front, honest and
open manner
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When is the best time to sell my business?
Usually
the best time to sell your business is when you don't have to or when it is
doing well. The decision is not one which should be taken lightly, and you
should groom your business and plan well in advance. Haphazardly going on the
market can seriously limit your chances of sales success and the amount of money
you receive. It is possible to sell most businesses if prepared, structured and
priced correctly.
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Why use a business broker?
Some business owners feel
that they can sell their business themselves. Who knows the business better than
they do? Place an advert in the paper, get your accountant to write a letter to
your competitors, and wait for the phone to ring.
Meanwhile, what happens
when the phone doesn't ring? If it does, could it be a competitor or a tyre-kicker
just looking to see what is for sale and for how much? If you hear from someone
who appears interested, they may visit your business, ask all kinds of
questions, make your staff nervous, get you to prepare lots of time consuming
paperwork, leave and disappear - never to be seen again. What happened to
confidentiality, qualifying the prospects and finding the right buyer? All of
this takes time, great effort, skill and professional processes.
A good broker should be
able to find buyers beyond the obvious - buyers you couldn't find on your own.
The broker, with a
database of qualified buyers, will be able to produce with the sellers
participation all the documentation necessary to show your business in its best
light. They should be able to add value, maximising the sale price so that the
benefits far outweigh any fees involved.
Selling a business is a
complex and time-consuming process. It is very easy to underestimate the process
and think you can do it all. You wouldn’t be the first or last to take your eye
off the ball while trying to sell, letting your business slide - weakening your
sales proposition. You can even make your business unsaleable. Don’t make this
mistake and live to regret it.
A buyer will
automatically assume a position of advantage if they see you have chosen not to
take professional help, especially if they equip themselves with an army of
experts - beware.
Not convinced? One of the
best reasons to use a broker is to act as a buffer between you and the
purchaser. There will certainly be times when you’ll want to adopt a tough
negotiating position. A broker makes this possible without antagonising the
buyer. Remember, you might have to work with a new owner during a handover.
If you need only one
reason, this is it. Sellers receive a better price for their business when they
work with an experienced professional broker.
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How do you choose a broker?
We are constantly amazed
at the lack of care and attention which goes into choosing a broker. Perhaps
this is why so many business sales fail? There are a few fundamental questions
you should get satisfactory answers to prior to instructing a broker to sell
your business. Why? If you don’t, you can waste thousands of pounds in fees and
countless hours preparing sensitive information. You will become frustrated,
disappointed and annoyed dealing with time wasters and tyre kickers.
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What are the tax implications of selling?
This depends if you are a
sole trader, partnership or limited company. Some form of tax is inevitable,
your accountant should put you in touch with specialists that you can trust. It
is vital you get advice on the tax regime applicable to your circumstances. The
question is not really how much your business will sell for, but how much of it
you can keep. The right tax advice can have a big impact on how your deal is
structured and ultimately how much you have to pay the Chancellor of the
Exchequer.
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How long does it take to sell?
This
depends on the market conditions and what is for sale. However, our average
business sale takes between five to eight months from start to finish, although
you should allow a full year. In most cases we are talking to the eventual
purchaser within the first three months.
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What information will I have to provide?
After registering with
CardPATH Ltd, we would ask for your latest set of accounts together with any
business plan or company literature. We would then work with you to determine
your business's saleability and answer any questions you might have. Please note
this can be done out of hours and off site in order to maintain confidentiality.
Prior to selling a
business it is as well to have all your systems, accounts and paperwork up to
date. The buyer will want to see Statutory Accounts, monthly Management
Accounts, Cash-Flow Statements, Fixed Asset Register etc. The legal people will
want copies of just about anything legalistic, so be prepared to provide copies
of loan/HP agreements, leases, contracts of employments, salary details etc.
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What is the "Memorandum of Sale"?
The Sale Memorandum is an
outline of the business and provides a potential purchaser an overall view of
its present structure and operation, including key financial information, such
as sales and profitability. The Memorandum will also concentrate on positive
aspects of the business, outlining possible benefits and future opportunities to
a potential purchaser. It is important that the purchaser ensures a thorough
"due diligence" exercise to ensure that the Company "is what it seems" before
Completion takes place.
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What are "Heads of Terms"
"Heads of Terms" is an
outline agreement between a purchaser and the vendor. The Terms will usually
provide straight forward details of what the purchaser is prepared to pay for
the business and any Terms on which the sale is to take place.
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Should my accountant sell the business for me?
This is where many people
get things wrong. The first steps are neither legal nor accountancy based. This
is one of the principle reasons many sales never get off the ground.
Would you let your
accountant or lawyer sell your products or services? No, of course not. You need
the right tool for the right job. Selling your business is first and foremost a
SALES and MARKETING exercise. Get this wrong and you could easily dent the value
you ultimately receive.
A business broker - who
excels in Sales and Marketing, knows the marketplace and has experience of
completing a wide range of transactions - should be the first person you
contact. They are also the right professional for your introduction to the
marketplace. A good broker can make a dramatic difference in not only how your
business is sold but also how much you get.
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How do you keep the sale of my business confidential?
We go to great lengths to
safeguard the confidentiality of our clients. We have a tried-and-tested process
of maintaining confidentiality. We vet and pre-qualify all our purchasers before
making signed confidentiality undertakings / non-disclosure agreements. No
confidential details of any business are ever given to potential purchasers
without a client’s consent.
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How will I know what's going on?
Working closely with you,
we regularly update you at every stage of the process. No details about your
business are ever given out without your express permission. You control who we
talk to and what we tell them. We are accountable to you at every step of the
way.
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OK, what's so great about you? Why should I use CardPATH
There are lots of average,
run-of-the-mill brokers around. Ask yourself the following questions. Are you
just a number? Do you want the best possible representation? Do you really want
to close a deal? Do you want an experienced guiding hand? Do you want things
explained to you in plain English? Do you want to be treated honestly and
professionally?
If these are your
requirements CardPATH will fit your model.
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What are your fees?
We agree with you in
writing all our fees prior to engagement. We are remunerated on a percentage of
the final sale price. Our fees are fully inclusive and we don't have any hidden
extras.
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How much time will I have to put into the process?
This depends on how
seriously you want to get a result. You will have to prepare some paperwork. If
you are well organised this shouldn’t be a problem. Client owners can continue
to run the company without disruption or distraction. Our pre-qualification
purchaser-screening process avoids tyre kickers, nosey competitors and time
vampires, which reduces both stress to the owner and tension for staff members.
Once a deal is agreed you will have to spend some time working alongside your
solicitor. Again the more organised you are in advance, the easier it is.
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Handover
Does your business have
management in place that can run things in your absence? If not, you need to
consider the length and type of handover you are prepared to give.
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How long will I have to stay in the business after it is sold?
The amount of time that
you will have to stay within your business after it is sold, is mutually agreed
between both parties and often before the Heads of Terms are drawn up. If you
offer to stay on with the business, this will provide greater re-assurance to
the Purchaser who will value your knowledge of the Company for the short term
future. Agreements will vary but the norm is 6 months and on a 2 to 3 day a week
basis. Also, you will probably act as a "Consultant" rather than as a Director/
employee.
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What about solicitors?
A solicitor’s job is to
draw up the definitive sale and purchase contract once a deal is agreed. It is
absolutely vital that you work with a solicitor whose main field of expertise is
corporate law - principally the buying and selling of businesses. It can be a
massive false economy to use a family friend or your wife’s brother’s friend’s
sister’s uncle to help. Choosing the wrong solicitor can cost you time and a lot
of money and untold amounts of stress. Solicitors can be real deal killers. Make
sure you pick a winner.
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What
do I do now?
Get started. Just
contact us to arrange a confidential discussion as
to how we can meet your individual requirements - write, fax, e-mail or call us.
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BUYERS
Take a chance! All life is
a chance. The man who goes the furthest is generally the one who is willing to
do and dare.
Dale Carnegie
Buying and building a
business is one of the quickest ways to assemble capital growth and wealth.
Returns can far outstrip anything offered by the property market.
At CardPATH we specialise
in helping vendors sell their businesses. The businesses we represent are all
classed as going concerns, which means that they are generally proven,
profitable and efficiently run.
Buying a business can be a
complex and time-consuming process. To avoid the frustration of wasting time and
money we provide this brief guide to help you deal both with us and with the
sales process. The guide is aimed at individuals making a purchase, not trade
buyers – although it is relevant to both.
ENQUIRE ABOUT
A BUSINESS
After registration, and
completion of the confidentiality undertaking / non-disclosure agreement you
will receive a one page summary of the appropriate business/s for which you have
expressed an interest
After approval from our
Vendor we can then forward you a full information pack.
Missing any of the above
steps may result in unnecessary delays and frustration.
ONCE REGISTERED you will
receive our automatic updates direct to your inbox. You will receive early
warning on all our latest instructions and news. We will not pester you with
unwanted e-mails and you can un-register at any time for whatever reason.
Not being
clearly focused.
Know what it is you are
looking for. Have a checklist. Focus on your key skills and look for businesses
that can complement these. Buyers and brokers will quickly dismiss you if they
think you are a time waster or tyre kicker. The perfect business doesn’t exist,
and you may have to compromise on what you are looking for. Do your homework
before you go looking.
Do you really
want to buy a business?
How serious are you about
buying a business. Is it a pipe dream because you’re bored in your present job
or are you really prepared to spend the time (sometimes up to a year) and money
looking for your opportunity? Do you have the support of your wife or partner?
Can you see yourself working hard to make your purchase a success? Do you know
what’s involved?
Understand the
seller's motivation.
This is vital. Why is the
business for sale? Don’t be afraid to ask this question directly. Has the seller
paid an upfront fee to a broker to represent them? How committed to selling are
they? What will the owner do after the sale? You need answers to these questions
in order to assess the proposition properly and find out if the business has any
underlying problems that the seller is trying to escape.
Not getting
enough information / Asking questions.
You need as much
information as possible to help you assess the opportunity fairly. However, this
needs to be balanced against the owners need to maintain confidentiality. Don’t
be put off having to fill in a confidentiality agreement or non-disclosure
agreement. You won’t get far without one. Ask questions gather as much insight
as you can.
Not having the
money.
Don’t expect to buy a
business without access to funding or a cash pile. You can find and negotiate
great deals, but you will need the finances in place if you are to be taken
seriously. Don’t get offended if you’re asked to provide proof of funding
ability. A seller will want to make sure you’re serious and not a time waster.
Work out what your budget is and how you can finance it. Remember, you will
probably need to allow for working capital requirements and debt repayments.
Presenting
yourself.
A broker, representing a
client will look for three main things from you if you are to be taken
seriously: Can you finance a deal ? Do you have the ability or skill set to run
the business? Will you get on with the owner? Update your CV, prepare a
personal profile, assemble an acquisition brief and know what you want to
achieve.
Understand the
brokers role and how they can actually help you.
A broker is there to
facilitate a deal, not to be obstructive and get in your way. Don’t get upset
when asked to provide information about yourself and your finances, or to fill
in a confidentiality undertaking. These are to protect the seller’s interests. A
broker will be managing the sale process on behalf of the vendor, and they will
be talking to many interested parties. Don’t be afraid to ask questions and seek
guidance on the best way to approach the purchase. Be honest and upfront, and a
broker should do all they can to help you..
Don't contact
the seller directly.
Unless you are given the
go-ahead by the seller or broker. you should not contact the vendor. This is not
to protect the broker’s commission, as most people mistakenly believe. This is
so that you don’t compromise the confidentiality of the seller. Respect this or
you won’t get very far in your attempts to purchase.
Making a
decision.
It is only courteous to
let everyone know as soon as you’ve made a decision – either way. Provide
feedback to the broker and let them know if a particular business is not for
you. They can help you find something more suitable.
Don't be
afraid to make an offer.
Offers can be made subject
to contract and due diligence. If you like the business and it ticks your boxes,
make an offer - state your interest. You are not obligated. However, make sure
you have the finances in place as you will get asked to prove your ability to
make a purchase.
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