Are you sale ready today – if the unforeseen happened or if a new opportunity came your way?
At The Alpha Group we make certain that you plan how to sell your business effectively by defining your clear goal for the sale, deciding a realistic value for the company and helping you to identify ideal advisers. Often you have been on a journey with us, starting in difficult circumstances, they have turned your companies round so your business is facing in the right direction, and then they have begun to grow your business and thriving, achieving massive growth prior to sale for a high value in order to achieve financial freedom.
So, how does this happen?
Easy, its a six step-process using the power of the peer-to-peer advisory board.
Firstly the peer-to-peer advisory board help you identify what is your strategic problem.
Over the past few years you have successfully grown your business and are achieving good results. During the past year you have been preparing the business for a high value sale i.e. the business is in good health and they have a Business Plan that will give potential buyers confidence in both the current performance and future growth of the business.
Don't forget, you may not have to sell your business in its entirety, you may have parts of your business that you can sell separately.
So, what could be the strategic problems facing you?
81% of the potential sales of small and medium sized (SME) businesses collapse before completion. Why is this? Experience of these stalled, and therefore very costly attempts, to sell your businesses show that business leaders often fail in three key areas:
1 They are unclear about your goals for selling your business.
Clarity about your goals can help you make better decisions, for example the decision to sell the business in whole of in part.
2 They are unrealistic about the true value of your business.
They may have an idea of what they would like to achieve, but is this realistic or an aspiration?
3 They select the wrong business sale advisers, brokers, accountants and lawyers.
your existing advisors may not be the right choice, especially if they have a long-standing relationship.
The peer-to-peer advisory board help you assess themselves against these three criteria.
Secondly the peer-to-peer advisory board help you decide your goal and your preferred type of buyer.
It is important to decide your goal for selling your business. Business Leaders sell your businesses for a number of reasons.
These include to:
a) To raise some valuable capital to grow another part of your company.
b) To let go of a non-core part of your company.
c) To merge with a much bigger company.
d) To provide the financial freedom and security for retirement, illness and other pursuits.
e) Because they have taken the company as far as it can go, either financially or in ability.
The peer-to-peer advisory board help you determine your bold, smart goal in 8 to 10 words (Specific, Measurable, Achievable, Realistic & Time-bound).
Decide your preferred types of buyers
Once they have established your goal, next the peer-to-peer advisory board help you decide who they want to buy the business.
Some possible types of buyers could include:
a) Trade competitors who want your market share, customer base and profit stream.
b) Strategic buyers from another company or industry who want either your technology or customer base.
c) Venture Capital or Private Equity companies who believe that they will achieve exceptional growth in your business over the next three years and then a profitable exit for you.
d) Your management team who have the skills and appetite to fund and then grow your business.
e) Wealthy individuals and conglomerates.
The peer-to-peer advisory board help you identify exactly who is the preferred type of buyer through which to achieve your goal. This can often be an emotional decision, particularly with a long established or family owned business.
Thirdly the peer-to-peer advisory board help you calculate your profit multiplier.
The profit multiplier times the operating profit determines the value of a business. The profit multiplier is calculated from five factors, and cover a range of values for each of the five factors.
1 You and your Directors
My Directors and I are essential to my business … through to … We have an autonomous management team with a succession plan in place.
2 Your market
We are in a highly competitive market … through to … We are in our own niche market, with a high barrier to entry
3 Your recurring revenues from licences & services
Our recurring revenues are < 10% of our total annual sales … through to … Our recurring revenues are > 80% of our total annual sales
4 Your customers
We have < 5 key customers in 1 sector with small market share … through to … We have > 10 key customers in > 1 sector with good market share
5 Your new products & services
We have a new product/service in development … through to … We have a fully developed range of new products & services with strong protection of our intellectual property for these
Having calculated the profit multiplier, we also calculate any additional Value
6 Your asset value
- We have few tangible assets … through to … We have lots of property, plant or machinery
Fourthly the peer-to-peer advisory board help you value your business.
Many businesses are valued at a profit multiplier of between 2 times to 6 times your sustainable operating profit (i.e. your profits or earnings before interest and tax: EBIT). These valuations do not include the values of your property, stock and the cash in your businesses.
The peer-to-peer advisory board help you use profit multiplier, calculate the value of the business below.
Strip out the value of your “company” yacht and racehorses.
a) Your profit multiplier:
b) *Your annual, adjusted operating profit: (see below)
Your business value:
*For your latest operating profit, is your starting profit correct? If not, adjust it with an explanation below:
Now add back to your operating profit the owners’ salaries, perks, legal & professional fees, owners’ pension contributions and one-off disposals e.g. property & cars. Put this revised figure below:
*Are there any other expenses which will not be incurred by the new owners?
Now write your annual adjusted operating profit in box b above and calculate the value of your business.
Fifthly the peer-to-peer advisory board help you select your ideal advisers.
Use the checklist below to help you select your ideal and trusted advisers to assist you to sell your business rapidly and smoothly.
Rate 1 to 5 in the boxes below where 1 is poor and 5 is excellent.
a. The speed that they produce up to date management accounts
b. your performance in selling businesses
c. your ability to assist you with due diligence
Will you use your current accountants to assist you to sell the business?
If no, which accountants will you select and why?
a. your performance in selling businesses
b. your reputation for selling businesses
c. your understanding of your business priorities
Will you use your current lawyers to sell the business?
Your Business Sale Advisers
your performance as true advisers (not just brokers).
your reputation for selling businesses like yours.
The size and relevance of your database of contacts.
If not, which lawyers will you select and why?
If you are going to use Business Sale Advisers, which criteria above are important to you?
Sixthly the peer-to-peer advisory board help you follow a sales process.
Follow the systematic process below to sell your business effectively.
Allow up to 12 months to get to stage 8: complete. Stages 1 to 5 can take up to 9 months.
Decide your sales goal, a realistic value of your business and select your right advisers
Complete your legal and financial details and get the funds transferred into your account
Prepare a compelling summary of your business (i.e. why someone should buy it)
Brief your lawyers. Finalise your sale and the purchase contract and personally read the drafts
3 FIND BUYERS
Research potential buyers
6* DUE DILIGENCE
Get your deal agreed subject to successful due diligence
Get bids and negotiate terms using a third party, including earn out/retention
4 OBTAIN OFFERS
Prepare additional sales information for interested buyers i.e. sales prospectus and check the financial resources of potential buyers
Follow the systematic process below to sell your business effectively. Allow up to 12 months to get to stage 8: complete. Stages 1 to 5 can take up to 9 months.
Seventhly the peer-to-peer advisory board help you obtain and file your key documents for due diligence.
The following key documents are critical for you to have available for the due diligence stage of selling your business. It’s wise for you to start now in gathering, creating and filing these documents in preparation for your sale.
1.1. Your up-to-date Memorandum and Articles of Associations
1.2. The names and address of all registered shareholders with your shareholdings
2.1. Your audited accounts for the last 3 years 2.2. Your management accounts for the past year
3.1. A list of bank accounts, including the name and address of your bank branches 3.2. Your overdraft and loan facility letters of agreement
3.3. Debentures, mortgages, charges and other security documents
4.1. A list of major customers (i.e. those accounting for more than 5% of your sales turnover) and the value of sales to you in each of the last three financial years
4.2. A list of major suppliers (i.e. those accounting for more than 5% of goods or services supplied) and value of purchases from you in each of the last three financial years
4.3. Joint venture and partnership agreements
5.1. The rules or codes of conduct of those trade associations of which your Company is a member and by which it is bound
5.2. Your undertakings and assurances given to regulatory authorities under antitrust or restrictive trade practices
6.1. The service agreements for each of your directors
6.2. Standard terms of employment for all grades of your employees
6.3. Documents relating to any of your:
• commission or bonus schemes
• profit sharing schemes
• share option schemes
7.1. For all of your company vehicles, the registration number, month and year of acquisition and whether owned or leased
7.2. A list of major items of capital equipment
8.1. A list of all your registered (patentable inventions, designs, trade names and logos) owned by your Company and used by it
8.2. Licences of intellectual property and know-how by your Company to third parties
8.3. List of domain names used by your Company and registration documents relating to these domain names
9.1. A list of software licensed to your Company and copies of any licences which are significant or unusual
9.2. Other IT contracts relevant to your Company including:
• Maintenance contracts
• Out-sourcing contracts
• Remote hosting contracts
• Hardware leasing contracts
• Disaster recovery contracts
• Source code escrow contracts
10.1. A list of all land and buildings owned, occupied or shared by your Company and the purposes these are used for
10.2. In respect of any leasehold property, a copy of the leases and details of the current rents
Documents: your key actions
Which of the above documents do you currently not have filed? Please asterisk these. Of these, which 6 will you collect and/or generate over the next 3 months? Please double asterisk these.
Working in strictest confidence, which members of your Team (including yourself) will be responsible for collecting and creating these documents? Please put yours and your initials against the double asterisked six key documents.
N.B. Don’t neglect your day job!
Lastly the peer-to-peer advisory board help you take the next action and get massive value as a result.
The profound impact on you and your company of selling your business effectively is that you will substantially increase your market value, and having everything worked out gives you flexibility and peace of mind.
If you would like to find out more about how The Alpha Group members sell their businesses effectively then please get in touch and I will be happy to send you further information about visiting a suitable group, online, face-to-face or blended with a mixture of real world and virtual board meetings.