Musings on business value, sale preparation, sale negotiations, sale structure.

Archive for February, 2015

There are no perfect businesses

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When it comes to selling businesses, we work with them for as long as we can to achieve several things:

  1. We want the presentation of the business to be clear, concise and accurate.
  2. We want the sale of the business to achieve the best price possible.
  3. We want the sale to go through, and stay through.
  4. We want the seller to get all his or her money.

So when we work with the business, it is first to make sure that everything required for the sale is in the right place, and in the righ format.

Secondly we make some suggestions as to how a higher price can be achieved

  1. Sometimes this is as simple as getting the presentation right.
  2. Sometimes it involves making some meaningful changes to the business to make it more valuable. This needs to be considered in the light of effort required to achieve what increase in value.

Simply put: There are no perfect businesses. It is the wont of the business owner – the seller – to show the business in its most positive light. It is the buyer’s duty, in the due diligence, to establish that these positive elements are true, and not exaggerated or worse – lies.

It is also certain in the due diligence, that the buyer will uncover some negative elements. This is unavoidable because there are no perfect businesses. A good buyer will understand this, and will not go screaming for the hills, unnecessarily. Instead he will take a view of what he has uncovered, and act in a rational way.

Poor buyers run for the hills, cancel the sale or make unreasonable demands on the seller.

Some buyers enter into a transaction knowing full well that there are no perfect businesses. They do this with the intention of driving down the purchase price on the back of the agreement of sale covenants. Competent intermediaries have seen this before and know how to mitigate any downside.

We do this by preparing the business for sale in advance of going to market. We help the seller to recognise inherent weaknesses in his business, and address those weaknesses in good time.

There are no perfect businesses. But we can get quite close!

Terrible timing

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At the end of last year I cancelled Suitegum’s involvement in a sale of a business.

It was a desperate sale, and taken on by us with some convincing by the sweet talking sellers who, as it turns out, were desperate to put something over their eventual buyers, the intermediaries and the banks. Several promises to us had been broken.

  • Economy of truth had become a tradable commodity.
  • Financial rectitude was in short supply.
  • The blame game had been wheeled out as the main attraction.
  • To my own fault – we are just no good at dumping businesses at short notice.

In the sale of a business, time has to be the friend of the seller. Opportunity and fortune are built around not being in a panic, but on building a solid selling foundation and creating a need for buyers. Much more than simply a perception of value of the quick sale. Sellers need provable evidence of value.

More than ever, capable and willing investors are able to shop around for deals that offer good value. They know this. So they are quick to move on from anything that provides any doubt at all.

Hang on… That sounds like the way you have built your business to sell your products and services, doesn’t it? That has worked for you until now, right? So why stuff up the eventual goal in this business enterprise, and try to sell it out of a bakkie parked at a petrol garage on a Saturday morning with some slight of hand and good sales patter?

The ultimate goal of every business owner should be to sell his business for the best price possible. When he does so, the business will be subject to scrutiny from unknown people with acceptable money. They will look carefully at what they are buying. Quick patch jobs will be evident as they twist and turn the thing you want them to buy.

That is also what your business is set to be one day – another product on the shelves for business buyers to put down in favour something more appealing. Get their interest, keep their interest. Build the evidence on a solid foundation which will stand up to scrutiny.