Trio Business Intermediaries Blog

Soon to be taking on a new business or an active part in an existing operation?

Some of the issues you may want to consider to make the new regime flow well:

• Talk, communicate, chat, email, liaise, - keep everyone feeling as though they’re informed and part of things

• Ensure everyone knows the basics – where the offices will be, where to park and how to get there, who’s moving where and when

• How any surplus team members will be deployed

• Clear responsibility for maintaining client contacts and ensuring they don’t even notice things have changed

• Another group need to be responsible for ensuring suppliers are on top of the changes and ready to integrate new locations or systems

• Who is mission-critical and what is being done to retain them?

• Any disparities between terms of employment, bonuses or perks

In the world of business sales and transitions we see a lot of negotiations.

What are your top tips for effective negotiations?

We recommend the two ears – two eyes – only one mouth approach.  Look and listen twice as hard as you talk.


 

Other suggestions include:

• Confirm your understanding of the matters you agree on and those you differ on

• Be clear about what you can offer up – it might be of little value to you but mean a lot to the other side

• Use a go-between / intermediary who isn’t emotionally or financially attached to the issue

• Break the issue up into smaller pieces collecting information and agreement as you go

• Make sure all of your team are actually on the same page – don’t assume!

• Map out worst case / best case / likely case – the process itself can be very enlightening

• Accumulate facts and hard evidence

• Recognise different negotiating styles – ‘no’ doesn’t always mean ‘no’

You must have plenty to offer this discussion – what negotiating strategies do you find work well?

Confidentiality is a critical issue that influences everything we do in business sales and valuations. 

It’s plays out in a number of ways:

• Ensuring staff aren’t unsettled by tales of a pending sale or change of ownership

• Preventing competitors using news of a sale to undermine existing customer relationships

• Maintaining dealings with suppliers, sure of an ongoing stream of orders

• Customers may become unnerved by rumours of a change of ownership, concerned about continuity of supply

• Professional advisors, whilst likely party to the planned sale or valuation, may leak an anticipated sale to other parties in the hope of securing a buyer

Whilst keeping all of these balls in the air, there’s another side to this whole confidentiality issue that warrants some thought:

How can someone buy the business if they don’t know it’s for sale?

Where do you sit on this vexed question?

There’s no doubt that marketing and making sales is tough in any business.

If business buyers can see that there are great sales and marketing machines already in place and actively churning away then they will feel much more comfortable about the transition to them as the new owner.

So if you’re thinking of selling your business we’d recommend putting some effort into documenting your sales and marketing systems, collecting good examples and shining a light on your achievements with customers and prospects.

Some of these areas might include:

• Graphs and other visual aids showing sales / marketing / leads / customer service / online stats

• Key sales and marketing people (NOT the outgoing owner)

• Smarten up the website, including testimonials and recommendations

• Tidy up the customer list and enhance it with each customer’s tenure, avg sales per month, industry  etc

We’d like a $ for every time we’ve mentioned that the banks still aren’t lending and the sentence is barely complete when the response comes back something like “I know ! followed by a long story of the short shrift from what’s historically been a friendly banker.

Well we can whinge or we can work around it.

Some ways to address the funding issue might include:

• Sellers offering vendor finance – Ok so not an original thought but has the huge benefit of backing the business to be sold.

•  Buyers asking for vendor finance – you don’t ask you don’t get and the appetite for this possibility is being driven by necessity

• Package the business professionally – it is now even more important to present the business, projections and upside in a way that the financiers can easily understand.  The business case needs to hit their cash-generating hot buttons

• Consider other funding sources – angel investors want equity and a say but a smaller bit of a bigger pie has to be a consideration

• Staged Acquisition – consider an acquisition over time with a pre-agreed timeframe and terms to provide certainty for both parties

• If your gut tells you it’s got legs – push on.  If your gut tells you it’s a dog – run.  If your gut is giving you a niggling feeling of indigestion but you generally like the fundamentals – that’s normal; keep digging.

• We have a theory that buying a business is like finding a life partner – there’s only one!  Just because no one has bought the business yet doesn’t make it a bad business.  The best owner and the business just haven’t met yet.

• No two or twenty-two businesses will ever exactly fit with industry benchmarks - there’s always some reason the benchmarks don’t apply so don’t rely too heavily on them

• All successful businesses have a competitive advantage – that thing that sets them apart from the rest.  Average performing businesses often just need their competitive advantage refined.  A well priced plodder business will likely represent more opportunity than a top flight winner that may have run its race.

• When you’re looking at the financials, comparing businesses, make sure you are comparing like with like i.e. have you considered the commercial rate of rent, what owners need to be replaced by staff, what revenue streams are fixed / contracts vs discretionary subject to an economic tsunami?

In the work we do in Business Sales and Business Valuations we often speak with business owners and managers about their financial statements (Profit and Loss and Balance Sheet) and wonder why they are not being used more as tools to manage and grow the business.

Some opportunities the Balance Sheet present to keep track of the business:

Stock / Inventory – make sure you have a complete list that adds up to the figure called “Stock” and then go through that list and make sure everything exists and is valued at the lower of what you can sell it for or what it cost to bring in.

Receivables – again make sure you have a list that adds up to the figure for “Debtors” (people that owe you money) and go through that list to make sure all are collectible. A good reality check is required here.

Trade Creditors / Other Creditors – your work is a bit tougher here.  This time you’re looking for what’s NOT on the balance sheet.  Some possible omissions include full employee entitlements (annual and long-service leave,) taxes payable, superannuation payable and commitments you’ve made for new equipment that’s not yet delivered.

Related party loans – hey, we’re accountants; we know the jiggery and pokery that goes on in businesses!  Reality hits though when a buyer or investor comes in and looks at the real substance of any loans.

Any issues you find with these values need to be addressed post-haste.  At a minimum making the adjustments will give you a clearer picture of your assets and liabilities.  A new owner or investor / partner will go through all those assets and liabilities with a fine tooth comb and discount any that look dodgy.

Some of the factors influencing business valuations right now (yes there is some upside!!)

A few thoughts from those of us who sit between business buyers and sellers:

• Nothing new under the sun here!  Buyers have always been cautious about everything they’ve been told and sellers have always tried to put the best shine on the business.  Buyers who make successful acquisitions make a measured assessment of the risks.
• One of the many factors in coming to a business valuation is historical performance – there are plenty of others.
• Asking the same questions lots of different ways will help to uncover exaggerations e.g. ‘How long have your top 10 customers been with you’ and ‘I’m thinking of the 80/20 rule – where does 80% of your revenue come from now, compared to 2 years ago’ are both delving into customer retention
• Revenue is not the only measure of success in tough times; think payment terms, customer retention, online vs instore sales, contracts / preferred supplier status vs on-offs.

We’ve recently read two very interesting articles on business sales.

Firstly Sue Prestney seems understandably concerned about the lost opportunities arising from the lack of debt funding available for business acquisitions.

Ms Prestney laments jobs never created, innovative products never produced and profits never made because enthusiastic business buyers can’t get finance.

Leon Gettler has penned a lengthy article on exit strategies in the excellent online publication Smart Company.

The section of the article that really caught our eye and gave a wry smile was an excellent two line comment at the end of the article by reader ‘eyesopen’ who suggests that was all very well and good but it comes unstuck in the execution phase because banks aren’t lending to SMEs.