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

Posts Tagged ‘business for sale’

Prepaired

In all my years of helping people to sell their businesses, the biggest frustration was not in finding buyers. There is never any shortage of people wanting to own good, profitable, well prepared businesses.

The real frustration always came in when the would-be owner had to find funding to enable the deal. The seller was faced with a choice:

  1. Look for alternative buyers while the one in hand seeks funding
  2. Wait for the current buyer to find his funding

I generally recommended the first option, in a low key, non threatening (to the buyer) manner. Problems arose if the buyer found out his deal was threatened, which often resulted in him losing motivation to carry through with the project. Similarly, funders insisted on exclusivity for a period while they conducted their due diligences. If, as often happened, the business passed muster, but the buyer did not, the deal failed. We were left looking for another buyer anyway, as if we had waited on option 2.

Taking the funding on offer from buyer 1’s bank often helped subsequent, more suitable buyers, if the seller stayed the course.

Cars

If you ever go into a car dealership to buy a car, as soon as you have got through all the salesman bluster, and shown your buy signal, and you have chosen your colour, seats, extras and so on, you will be ushered to the financing “department”.

Of course this is not a department of the dealership, necessarily. In reality, the “department” is an individual who is a bank clerk with a desk at a dealership. The bank has previously vetted the product and the dealership. Of principal interest to the dealership and the bank now is the viability of the customer – you.

White goods

Similarly for cars, the customer is shown a seat at the “finance desk” of the department store selling washing machines, TVs, laptops, smartphones, and so on. Things are a bit different for these goods because often the financing of the goods sold contributes significantly to the bottom line of the parent company, for reasons which have become abundantly clear over recent times.

Never the less, the metaphor(ish) holds: Goods and services stay sold if the funding is easy to come by. The funding is product approved in advance by the funder, subject only to a suitable buyer.

So why are business sales not pre-approved for funding?

Well they are, and they can be. It is not as simple as the process of a bank getting into bed with a car dealership group, but it can be done.

Our PrepareYourBusinessForSale™ initiative has been expanded into its obvious next step… being “PREPAIRED”. It is a process which takes time and is not easy to wedge into a fixed algorithm, given the complex differences between different businesses. But a guided and considered approach can achieve remarkably rewarding results.

Speak to possible funders of your exit plan well in advance, and get a feel for what they are going to require in

  • Your business
  • The new owner
  • The deal structure
  • The deal value

Keep in mind that you will have to work with your funder in placing the correct new owner, when the time comes.

“I am just so sick of the uncertainty. My business is really doing well, and it has some good years ahead of it, so it is time to get ‘Prepaired’”.

Shedding some load

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I was asked to attend a meeting of creditors with respect to the Ellerines business rescue in early August. There were hundreds of very grim faced people there, although I don’t know who was an employee and who was a general creditor, and so on. Judging by some of the questions from the floor, there are some small business people creditors, for whom this is their major, and possibly only customer.

The meeting highlighted for me the exposure small businesses tend to have in not spreading their wings to a much wider base of customers, as difficult as it is to do so. Prospective buyers of businesses are likely to be limited to industry investors in such circumstances; competitors with similar problems, looking to grow and spread their own risk through acquisition.

Unfortunately, in such circumstances, selling prices are always low. The alternative to selling is to cling on for as long as possible, and hope you don’t lose that one really big customer.

Anyway, back to Ellerines, which is reportedly shedding 500 branches this month, in order to make itself a viable entity. That is 500 fewer branches through which suppliers can expect their goods to reach the consumer.

Just another reason for you to look carefully at how many different customers you have, and which of them may be vulnerable to either becoming insolvent or moving to another supplier of whatever it is you make or supply.