Could your business be attractive to a potential buyer?

In Part 1 of this Q&A, Louise Lee shared some strategies that help business owners to step back and make sure their business can run without them.

Whether or not you’re thinking of selling your business, these tips are worth following as they’ll make your life and your business much easier to run!

How to set up your business to run without you  includes five free templates.

Andy Boothman I built my design business around me and never really planned for the end. When you’ve sunk a lot of time and effort into something it’s hard – mentally and physically – to let that go without any form of pay back.

In this session, Ann Hawkins, MD of Drive the Network and Inspiring Entrepreneurs and Andrew Hawkins of The Mercantile Group, share their experience of how to make a business attractive to potential buyers.

This is a transcript of a live Q&A in the Drive the Network Facebook Group. 

What puts potential buyers off?

Helen Lindop What are the key things people get wrong in terms of not setting up their business to be saleable?

Ann Hawkins I’d say that main thing is in making themselves indispensable. That’s why we started with Louise Lee last week with strategies to overcome that problem right from the start.

The other is in taking all the revenue out of the business, not showing a profit or paying tax. A buyer wants to see profit potential and some good accounts that show the business is being run properly and responsibly.

Helen Lindop Should we be thinking about this from day 1 (or if we’ve already started, ASAP)?

Andrew Hawkins 2-5 years before you want to sell is the minimum. It can take a lot longet than most people think!

Ann Hawkins As you all know, my favourite saying is “Start with the end in mind”. If you set your business up with an exit plan in mind it can influence the decisions you make about the business is tructured and it gives a clear focus right from the start. Even if you decide not to sell, setting your business up to run without you is the best way to grow it and stop you from burning youself out!

Helen Lindop Is there a ‘business eBay’ where we can see what’s selling and how much for?

Andrew Hawkins There are various agencies – but beware they all want to take your money! Hilton Smythe and Knightsbridge are examples – not recommendations.

Ann Hawkins This has always been a good “business marketplace” DALTONSBUSINESS.COM

Helen Lindop Are some types of business generally more valuable or easier to sell than others? E.g. products, services, websites, bricks and mortar

Andrew Hawkins Each business will be valued – although the methods of calculation vary – and compared to similar businesses. Generally ‘small businesses’ will be valued between 2 and 10 times annual profit.

Ann Hawkins If its a product, you’d need to show you own the intellectual property, trademarks etc.

Helen Lindop If you were starting a business today with the intention of selling it in 5 years time, what type of business would it be (asking for a friend 🤣)?

Andrew Hawkins Little effort, highly profitable, mostly automated. Recent trends suggest tech businesses are the easiest to sell.

Ann Hawkins Just think about some of the buy outs with big $$$$ in recent years. They’re nearly all software businesses – and a lot are B2C consumer / services. Some haven’t even made a profit but have huge subscriber lists and that’s what they’ve been bought for. The buyer wants to sell more or advertise to those subscribers.

Louise Lee Other than high profitability and low effort, what can help make a business attractive to potential buyers? I assume a coherent set of accounts is a good start?

Andrew Hawkins Coherent accounts – and credible. No surprises or hidden loans to directors etc. The other issue is a good team with complementary skills. The purchaser may not want the founder/MD for very long but a strong team is always attractive.

Ann Hawkins It can be something that’s a match with what the buyer is already doing or they see you as a competitor and want your customers. Another reason could be that your business adds something to their current offering – think AirBnB who bought Martyn Sibley’s Accomable (accessible accomodation portfolio)

Louise Lee Let’s assume it’s easy to demonstrate coherent and credible accounts and the buyer sees me as either a competitor or a good fit. How do I demonstrate I have a strong team?

Andrew Hawkins You should be able to show that your team has the skills to cover all the basics: Product/service knowledge, marketing/sales, finance, operations.

Ann Hawkins When Tony Savil told the story of selling his business at Drive he said that one of the things he’d put in place was a method of decision making that meant no-one person was responsible for a decision – it was a team effort.

A ten point checklist

Ann Hawkins Selling to an outsider is only one option. You might want to allow an employee to “buy in” with a view to taking over when you’re ready to retire. If you’ve got a succession plan in place, that can be attractive to a potential buyer too as it means they’ve got someone ready in place to run the business if they don’t want to do it themselves.

Andrew Hawkins  Often a great way to plan succession. A management buyout. You have some control over who is involved and negotiations should be more amenable. Other options include a management buy-in where a new external team is put together to buy; a straight ‘trade’ sale; a merger with a mother company – or even an arranged takeover by another business. Here’s a check list of things to think about, but most importantly plan early (2-5 years ahead) and consult an independent specialist (not a sales agent) at the earliest opportunity.

  1. Plan ahead 2-5 years
  2. Minimum 2-3 years profitable accounts
  3. Ensure accounts are ‘clean’
  4. Don’t try to avoid paying corporation tax
  5. Need good level of profit over a number of years to attract buyers
  6. Calculation of price is often dependent on level of profit
  7. Make business less dependent on founders/MD
  8. Most non-retail businesses require preparation of a credible proposal
  9. Non-retail agencies can help attract potential buyers
  10. A simple up to date business plan

Louise Lee Individually I understand the words in point 8. Collectively I don’t. Would you explain please? 🙂  Oh and how does one manage to avoid paying Corp Tax? I’m asking for a friend 🤣

Andrew Hawkins A credible proposal is a sales document demonstrating the history, current position and future prospects. Plus a credible reason for the sale.  As for avoiding tax … well…. that would be ….. Anyway – don’t do it – if you want too sell – pay the tax on your lovely profits. 😁

Louise Lee What would a simple business plan contain?

Andrew Hawkins Very briefly – as each plan is different – a simple business plan needs to be completely up to date and easily understandable by an outsider who may have no knowledge of your trade or sector. It should include all the necessary financials – P&L, Balance sheet and cashflow projections. It needs to tell the reader what the business does, how it started, what exciting prospects it has for expansion and greater profit, the founder and the team together with CVs, description of product/service, competitors, SWOT analysis, marketing/sales plan, risk and reward.

Want to keep your intentions to yourself?

Ann Hawkins We’re aware that not everyone wants to broadcast their intentions of thinking about selling their business so if anyone wants a private chat just send us a message!

You can find us on Twitter @AnnHawkins @Andrew_Hawkins  or contact us through the Drive website!