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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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