What's Holding Up the Sale?

November 26, 2019

In the world of business sales, some business sales are smoother than others. Why?

 

Price expectations

 

Owners often have a very unrealistic expectations of the value of their ‘baby’ on the marketplace. The emotional attachment to a business distorts the cold, detached view of prospective buyers, to whom it is just ‘business’. The seller may also have a need to fill a pension pot to a certain level and needs the sale to produce a certain level of funding, which may not be realistically achievable.

 

Anecdotal evidence of other’s success in selling a similar business may artificially raise expectations: I have heard more times than I can count, ‘My friend told me they sold theirs for £X….’. Even if what the friend claims is actually true, there is no knowing what was involved in that deal! How much was cash in the bank? How many years was it to be paid over? What were the assets against which a bank funded the business? There are endless variables that affect the final sale price that no two businesses can ever be the same.

 

It is also possible that the agent is inflating the price unrealistically because they need to earn a commission… but that is another story.

 

The owner is the business

 

The most common obstacle to a smooth sale is the role of the owner in the business. A business which relies too much on the daily input from the owner is going limit the pool of prospective buyers. The new owner will must either take a hands-on role themselves or will have to invest in a replacement for the incumbent – and recruiting and retaining the right staff is a challenging process to add to the already challenging process of the acquisition. So, as the idea of selling up takes shape in your mind, take a long, hard look at your own role in the business, and start replacing yourself first and foremost.

 

Retained negotiators

 

Many business buyers retain he services of a professional M&A expert to advise on the deal and to negotiate on their behalf. The advisor will almost certainly be invoicing a large hourly fee and be keen to impress. This often leads to extended haggling over ‘non-issues’ of no consequence, thus slowing down the sales process. In such circumstances, the seller’s agents need to maintain a ‘back channel’ to the potential buyer, which should be used to encourage the buyer to take a strategic view and move things along diplomatically.

 

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