Accelerator: I wish I'd known... How to sell my business

When you've decided to cash in, you need to manage your own unreasonable expectations, says Nick Hood.

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Last Updated: 09 Oct 2013

So the time has come. You've built a great business and you've got your head round the idea of parting with your creation. Now for the difficult bit - finding a buyer and surviving the negotiation phase, never mind those endless, expensive meetings with lawyers to agree the sale contract.

To avoid suffering a crushing disappointment, you need to grasp two vital realities at the outset, neither of which is somethings you really want to hear.

First, the best way to maximise the sale price is to deliver a warts-free, well-groomed enterprise to your buyer. Your mindset will be that what you have to sell is perfect, but you'll be wrong.

All buyers will pick over your offering and come up with a list of negatives, which they'll use to drive down the price. You must anticipate these and make it hard for them. A classic example is lots of old uncollectable balances. They may not add up to much, but they make the whole ledger look suspect, so write them off completely. Dump unprofitable contracts or customers, and calculate how much their elimination will boost the bottom line, ready to use as a bargaining lever.

If there are non-business assets in the balance sheet, such as a yacht or the family's villa in Spain, transfer them, subject to any seriously adverse tax implications. If you are paying your gardener or a nanny through the company, find an alternative method. These things make it look like you're running a lifestyle business, and the price will be downgraded.

Where possible, pay off any balances owed to or by yourself, your family or connected parties, or put them onto proper commercial terms. If you have surplus assets, turn them into cash. Improving your cash position makes the balance sheet look healthier and the operation seem more efficient. No buyer likes to pay for assets they don't need.

Try to settle any ongoing litigation or disputes. Whether you are being sued or you are the aggressor, these situations are huge negatives for interested parties.

Now for the thorny subject of the price itself. The moment you decide to sell, sit down and write out the following mantra at least a hundred times: 'My business is worth only what a properly funded and willing purchaser will pay at a moment in time.' Repeat this to yourself in the bathroom mirror every morning until you've drained the last glass of champagne after the completion meeting.

You need to take advice about the potential value, otherwise you risk under-selling. But don't ever believe a theoretical valuation prepared on the basis of your last set of accounts without getting an opinion from a seasoned business sale professional.Buyers will not agree a stock exchange price for an SME. Nor will they pay a fancy multiple of your projected profits two years into the future. That's their upside; yours is the present value.

By all means adjust past earnings by adding back your own salary and all those perks, but if you expect to stay on and be paid, it will reduce the price.

When you instruct a professional to help you sell, put them on a success-fee basis, where the better you do, the more they earn. This encourages them to be sensible about the price they ask, otherwise they will be wasting their time as well as yours. Finally, be flexible about what you'll accept and don't imagine that this price will be what you get paid. There are always downwards revisions during due-diligence and as the negotiations proceed.

Nick Hood is executive chairman of Begbies Global Network (nick.hood@begbies-traynor.com)

EIGHT WAYS TO A PAINLESS HANDOVER

Clean up your act - offer interested parties a glitch-free package and stop them nickel-and-diming you over irrelevant issues.

Move out non-business assets and kill non-business expenditure - lifestyle businesses are harder to sell and command lower prices.

Sort out your sales ledger - drop unprofitable customers and cash in surplus assets to cut borrowings and purify the balance sheet.

Settle any litigation or disputes - buyers hate these counter-productive issues and will discount their offer accordingly.

Be realistic about the price you ask - theory is bunkum; the only reality is what your buyer will pay. Consult a business sale expert.

Pay your sale adviser on a results-linked basis, with no fixed fees, then everyone in the boat is paddling in the same direction.

Be flexible about the price - the tablets-of-stone approach can scupper deals when there's only a minor gap between the parties.

Expect to see your agreed price shrink once the accountants and lawyers get involved.

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