Sale of a Business - Business Section 2nd November 2008 - FM Accountants Auditors, Tax & Business Advisers

Business Section - 2nd November 2008

By Cormac Mohan Partner from FM Accountants Business Advisers

The key is to approach a business sale as a process and NOT an event. Fm Accontants take a structured, balanced and measured approach to selling a buiness. It is imperative that the business is conditioned or groomed for a sale. Realistically the owner should be exiting at a time to optimise the value. The business needs to be on a strong footing in terms of depth and breadth of management. It should have a clear focussed business plan with good reporting systems. There can be complex issues to address. The reality to demonstrate the business has sustainable revenues with strong cashflows will enhance valuation. It may mean reducing the dependence of the business on the owner, or getting key employee contracts in place. Tax planning is also a key consideration. The out come from this works is a Draft Due Dilgence document, which would normally be prepared three months out from sale. In effect you look at the business from the point of view of your potential buyer and see that all aspects of the business are in order.

Valuation Process:
The business should be presented and structured in such a way that it is noy over-reliant on the exiting owner. This is a factor that is oten over looked in the market place on the disposal of particularly owner managed businesses. These are all factors that impact the pricing and valuation of a business by a prospective buyer. The key to successful presentation of a business for sale is to convince the acquirer to assess its full value. Without spelling out the valuation calculations themselves in the sales memorandum, the seller should provide sufficient information in a clear and organised manner for the reader to draw the intend conclusion with the minimum of effort. Above all, a sales memorandummust be consistent and must not leave the reader asking questions.

Common pitfalls that people fall into when engaging in sales transaction:
In a family business, family considerations often overwhelm strategic realities of the business situation and hinder pragmatic decisions. This weakness accounts for so many of the failed attempts to keep family businesses alive across generations.
Poor planning and unrealistic or inflated expectations by the owners on what their business is worth. A lot of entrepreneurs think they have the perfect retirement plan, taking great comfort from good profits. As a result many have unrealistic ideas about price and the time it takes to sell. Realistically, however, they have not done the work necessary to get the business ready for a prospective buyer. Unfortunately in today's climate, with increasing competition and the general slowdown, buyers are becoming more demanding.

Common reasons why people decide to sell their business:
Based on my experience and research, motives for disposal may be roughly divided into two types:
Personal - motivation might include the wish to retire, or to move into a different field or business type, health scare, or wish to lower risk and stress. Personal reasons will typically be stronger when dealing with businesses created by the owner and vendor and to which there is some emotional attachment;
Market-driven - at the other end of the spectrum, the vendor may be motivated purely by maximising the return on investment and simply be seeking to sell when they perceive the market valuation of the company might be at a peak.
Mohan says “In summary its imperative the seller has the ability to see the buyer’s side clearly in order to gain an appreciation of how to position his/her business for its sale ‘’

From the Buyer’s Perspective:
Typically a buyer will look to see what are the components of the business that drive value. Is it assets that you can touch and feel or is it the systems, processes, people and activities of the business that provide real value? A buyer should have an understanding of the business, its risks and the potential upside. The buyer should always carry out a thorough due diligence of the business and consider the findings carefully and understand the underlying risks. An understandin is required on the position of the business in the market place and its competitive advantage. Sometimes a buyer will have the ability to see the future potential of the business. They may want to bolt it on to their existing business or see it as a strategic fit in terms of diversification. On the whole most vendors like to keep the process confidential and the buyer may need exclusivity for a period of time. This minmises disruption for all involved. In summary the key to successful business sales is to have a trsted adviser who understands the dynamics of owner managed businesses. It is imperative to manage the process in a sensitive, structed and orderly manner as the information on a business is commerically sensitive.

The owner’ proceeds from the transcation value is driven by how well the transaction is managed

Well managed transactions begin
with an effective transition process

Company Profile

With offices based at Sandyford & Lucan supported by an experienced team, FM Accountants & Business Advisers are business transition and succession specialists. They help you prepare a business for sale in a way that maximizes the value of the business – and achieves the optimal sale price. The firm has gained significant experience in the Pharmacy, Retail, Food, Professional Services, Construction and publishing Sectors.

Cormac Mohan, Partner
FM Accountants & Business Advisers, has over twenty years experience in strategic business planning, business valuations, corporate finance and restructuring of businesses. He also has significant international experience having worked in the Nordic countries Switzerland and the UK.

George Frisby, Partner works closely withthe firms clients in order to assist them in the smooth and efficient running of their business together with Tax planning.