Finding serious business sellers runs a little deeper than just scanning lists of businesses for sale.
It’s not just a question of ruling out those testing the market from those genuinely wanting to sell, it’s also a case of finding businesses that are capable of being bought – no matter what the thinking of the prospective business seller.
There can be few small and medium business owners who have never thought in a dark, or idle moment: “you know what, given the right offer I would sell this business and walk away tomorrow”. However, the steps that lead to a successful sale are unlikely to be completed overnight and many prospective business sellers are daunted by just what needs be put in place before a successful business sale can be made. So much so that it is often only extreme circumstances such as impending (enforced) retirement, or other immovable personal, or external situations that force their hand. Either way, voluntary or forced, the temptation to cut corners to just get the sale can be strong and so it is important for the prospective business buyer to ask the right questions and make sure the facts fit the figures and the forecasts are realistic visions of the future.
Defining a Successful Sale
To begin with it is worth outlining what a ‘successful sale’ really is. This is worth defining because, unlike another large capital purchase such as a house, the sale of a business is usually the sale of a living breathing entity with employees, suppliers and customers all depending to different extents on its continued successful existence. This is all quite apart from the new owner who will also be expecting a good return on the investment over time and usually a decent ongoing income in the short term.
The departing owner will need to get the best price they can and, depending upon the size and state of the business and their personal circumstances, the money from the sale may well define, or dictate how they will live the rest of their life.
A successful business sale is therefore not just a win/win type situation, it is a multi-dimensional win with multiple stakeholders – the vast majority of which will (and should) know nothing until the deal is done.
It is because of the complex nature of the handover of ownership that the start of the search for a business seller who is fully prepared for the full journey of making a business sale, starts at the end. As a buyer, we need to see at the very beginning that the path has been laid to take us to the end and that there appears to be as few missing links in the journey as possible.
Defining What is to be Sold
Probably the best indication of this is that the seller fully appreciates at the outset what the buyer is looking for and already has prepared answers to the most likely questions before the process begins. To this end a prospectus is helpful, setting out the details of the business operations, assets and liabilities and future potential for both sales and profit.
It is helpful if the prospectus is not reams of paper, but contains sufficient information on key figures such as turnover, profitability, the wage bill, current and following year projections, etc. Asking a few judicious questions which drill down into the detail of the prospectus at the early stages, will provide an indication of how much preparation work has been undertaken (or not) and what problems may be encountered in the future as further detail is sought.
If the detail appears to be there we can be reasonably certain the seller is serious as quite a bit of work will have had to be undertaken to get this far. All of the work will have carried the risk of discovery as ever more detailed questioning will inevitably risk raising suspicions amongst the workforce that something is up.
Reason for the Sale
The next obvious question is the reason for the owner wishing to sell. For some the reason is obvious and is written in the lines on their face. However, even for retirement sales, it is worth drilling deeper to find out why the business owner does not see potential to transferring ownership the within the family, or whether opportunities for a management buyout have been explored. The answers to these questions will to some extent provide an indication as to how much faith the seller, and possibly the business management, really have in the business going forward.
This last point may not seem to matter too much as present owners often cannot see the wood for the trees and the potential opportunities the prospective buyer has in mind may never have occurred to them. However, the results of questioning in this area can reveal deep seated problems within the business that may only come to light when the business changes tack, or external stresses come to bear such as a change in the economic climate, or even legislation.
Can the Owner Really Sell?
If we are happy the detail is there and the potential is real then we need to make sure, before we begin in earnest, that the owner can be separated from the business without the business failing as result. In other words that the business owner is someone providing strategic direction and impetus to the business and is not a key worker.
You can of course ask this question and get a completely false answer, not because the potential seller is trying to pull the wool over your eyes, but through genuine self delusion. The best way to check this is to look at a combination of management structures and procedural documentation. If the business is IS9000 certified we will have a good framework on which to make the assessment and should pretty quickly be able to see operational processes and responsibilities outlined. How often the MD (if the MD is the owner) appears in the day-to-day processes will be a good indicator of how easily extracted from the business the owner can be.
If the business is not ISO 9000 certified and there is no other equivalent in play such as standards relating to the industrial sector, then some other indication of systemisation must be sought. This must give an indication of authority limits within the management team and methods for resolving normal operational difficulties without resorting to the intervention of the MD, or owner.
Another indicator of course is the diary of the owner. If it is (figuratively speaking) filled cover to cover with team meetings, site visits, appraisals, etc, then you will know it will be hard. If however, they are flexible about meeting times and spend an indecent amount of time on holiday, or on the golf course, then it is likely to be an easier journey.
Having explored the issues outlined above we will know that the current business owner has fully prepared for the sale an when we ask for details we will not have to wait for eternity for it, or get incomplete answers when it does come. We should have a good indication that claims for the potential of the business are real and that (to some extent at least), a business sale is the best way to realise that potential for all interested parties. Finally we will feel assured that when the current owner is gone, they are gone and we will be able to pick up the reigns of the newly acquired business and take it where we wish.
Once we are in that position we can then start with detailed due diligence and price negotiation in full confidence that, all being well, the path through to sale will be comparatively smooth.
If you are a potential business buyer and are only looking for serious business sellers then A2Z Business Brokers is the place to start – why not get in touch?