4 Critical issues that influence successful business sales
1. Avoid being passive when you sell
Traditional methods for selling companies involve shockingly low levels of selling and enquiry generation. This is the greatest enemy to selling a company and the main reason why the vast majority of companies fail to sell.
We would never consider selling our products and services in such a passive manner, with little or no enquiry generation.
At BCMS we employ some highly skilled accountants but our conviction is that this is not an accounting issue but a selling issue. Most of us would not ask our accountants to sell our products, yet we give away what is probably our greatest asset.
At BCMS we hold negotiative dialogue with an average of more than 200 prospective buyers just to sell one company. A high intensity of effort must be put into research and qualification.
There are no short cuts.
Note: There are three important reasons why the number of prospective buyers is usually a surprise to our clients.
2. Find out the motives of the buyer
People's motives for buying a business are diverse. There are 2 principal factors that influence a premium price, these are:
- Quality, stability and longevity of the business client base
- The potential for business growth
Other positive factors are often if an overseas buyer:
- Wants access to the UK market
- Would like to diversify into your sector
- Would like to acquire key people or technologies
It is interesting to note that whilst quality of the client base and potential for growth are the major reasons why a premium price is paid, ROI is the least mentioned reason.
That raises a valid question. Why do we take the least important buying reason and often make that the basis of the business valuation?
The BCMS process normally results in 3 to 5 bids for our clients' companies with a difference between the highest and lowest being on average a massive 270%!
The reason for this is that the business value is about the 'motive of the purchaser', not 'multiples of profit'. If it was all about multiples of profit all bids would be close to each other, however, we almost never see this.
3. Create bidder competition (a choice of buyers)
This competition influences a business's saleability more than anything else. Too few buyers lead to limited competition between bidders. Bidder competition also impacts the speed of the business sale, terms of the deal and the final price achieved.
Virtually the entire BCMS process revolves around establishing this choice.
Furthermore, to sell a business for the maximum price the buyers must also be strategically motivated and financially strong.
4. Sell the future, not the past
Business buyers buy future potential, not past history.
Nobody ever buys a company's history, however they do buy it's future. Yet, despite this, business value is traditionally related to historic accounts. We think that is quite wrong.
To clarify this, BCMS introduce our unique 'Step Change Business Plan'. This very important document has considerable influence on negotiations as it asks the simple question:
"What will the business look like in 3 years time when the buyer has applied their resources, finances, sales skills and above all, customers?"
The business plan is by far the most important document you could ever produce when selling a company.
