Page 18 - Wealth of Experience - Selling a Business 2019

GETTING THE

RIGHT PRICE

Market dynamics can greatly alter the standing, assets and liabilities, business description,
appetite and opportunity for sale and market position, clients, strategies, promotion methods,
acquisitions. Macro considerations markets served, management and human resources.
like politics, technology innovation and It is the business owner’s chance to set out all the relevant
global economic trends have influence details about their company in a well presented, clear,
concise and detailed way - a high quality IM goes a long
over the process of selling a business. way to ensuring a smooth acquisition.
Individual sectors and markets have
their own dynamics that can impact sale Due Diligence
opportunities. This is done to give prospective buyers an objective view
of the business and involves a thorough business, legal,
The precise impacts of wider political changes vary and financial investigation of a company in preparation for
between sectors, but larger shifts - such as Brexit or a possible sale transaction.
protectionist trade policies - will generally affect most
sales in one way or another. Our survey found that only Expect this to be incredibly in-depth. They will need to see
6% of respondents cited Brexit uncertainty as a cause for forecasts, budgets, monthly management accounts and
delay when it came to sell , this could be due to the fact a lot more. It’s common for an experienced accounting
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that our respondents sold before Brexit was a factor. firm to do this. They will dig deeply around a company’s
history and really focus on the small details, no matter how
As with all business matters, uncertainty causes decision seemingly irrelevant or trivial.
makers to pause and buyers to second guess their
decisions. Potential buyers may wait to see how things The buyer will want to know what they are paying their
play out, meaning they are less likely to commit to a money for and where the danger of the business’s value
decision during unsettled times. depreciating lies.
The value of a business Before due diligence begins, it’s essential for the vendor
and buyer to enter into a non-disclosure agreement. This
Arriving at a valuation which both the seller and buyer prevents the buyer from leaking confidential information to
agree on is arguably never easy. But owners can do work anyone other than their advice team.
ahead of a sale to make the negotiations less protracted.
Getting a business in the right place can be an intensive When it goes a little pear shaped
process in itself but is always worth the effort. Due diligence is the stage where deals often break down.
A study carried out by the Exit Planning Institute of 200 Buyers don’t like risk and will negotiate hard on areas they
San Diego business owners found that two-thirds said that feel could undermine their opportunity. It’s not uncommon
“Getting full value for my business to fund retirement or for parties to have a different perception of risk within the
other business interests” was their primary goal. However, business. Disagreements may also arise around it being
only 40% had undertaken a formal valuation in the last the ‘right fit’ and the potential impact on employees and
three years . culture - owners hold these things in high regard. An
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experienced M&A Lawyer and Corporate Finance adviser
Unsurprisingly, business owners often only have a vague really earn their fees at this stage of the process.
view of how much their business is worth. This is generally
based on an informal conversations and some market insight.
Did your sale generate the figure you
As the exit planning strategy develops a more appropriate expected?
figure, or price range, can start to be identified.
Two important elements play a critical part in defining the value
of a business, especially when it comes to assessing risk: YES 57%
Information Memorandum (IM)
An IM is a package of documents created by business NO 26%
owners to show potential buyers the relevant details More than expected
of a company. It should be transparent, thorough and
accurately reflect a business’s actual operations. An IM NO 15%
should be an exhaustive account of a company’s financial Less than expected

7 Cooper Parry Wealth of Experience Survey Q17
18 8 Exit Planning Institute ‘State of Owner Readiness Survey’