Selling a business that you’ve put your heart and soul into for many years can be an extremely emotive process – not to mention a complex one. Knowing where to start, and how to navigate your way through what is a lengthy and complicated journey, requires considerable research, expertise and support, to ensure you achieve the desired result – a healthy return on your investment and, importantly, protection of your professional legacy.
So, if you’re considering selling your care business, what 10 things do you need to know to ensure the process is successful?
1. Ensure it’s ready for sale – ideally you would prepare a data room with all the information that you think a prospective buyer would need, in order to make an informed decision. If you’re using a broker, they should guide you through what will be required. Broker or not, you should ensure that you can easily access:
2. Understand your numbers – a lot of business owners want to sell their business,but they struggle to understand the numbers in the balance sheet and in the profit & loss. You’re not expected to have auditor level knowledge of the numbers, but a basic understanding of each will always be beneficial. Also getting to grips with realistic projections helps to remove uncertainty in your buyer’s mind.
3. Business valuation – brokers will often tell you it’s worth as much money as they can credibly get away with. By raising the price, they get you to sign the contract,but often don’t make a sale. They’ll proceed to tell you that your business is worth 8x, 10x, 14x times its profit. In truth, the business is worth what a buyer is willing to pay and that’s it. If there’s a large gap between a buyer’s valuation and the broker’s valuation that you’re unwilling to bridge, the buyer will simply walk away. There are plenty more deals just around the corner.
4. Adjusted EBITDA – too often, brokers or business owners adjust their accounts incorrectly providing an inflated and misleading representation of the business’s financial performance. Make sure any adjustments are reflective of the true state of the business. For example, if the company is owner managed, simply adding back your salary because you are leaving the business is not necessarily reflective of what the business will need to function – it will need a replacement and therefore it should be adjusted at an appropriate market rate.
5. Ensure the property portfolio is ready – are your property leases in order? Are there any potential issues with the freeholds that should be brought to the buyer’searly attention? If freehold is held outside of the company (e.g. in your own name or in a separate company you control), make it clear whether the property is to be included in the sale and, if not, under what terms do you expect to lease the property to the company. Also consider whether the property insurance that’s in place is suitable?
6. Be prepared to answer the buyer’s questions – before you sell your business, you should be ready to answer a lot of questions from potential buyers. First of all, most buyers will want to know why you’re looking to sell the business. Are you sellingbecause you plan to retire, or are you selling it because the business isn’t profitable? You should also be prepared to answer in-depth questions about your company’s history, how you came up with a valuation, and whether your business can run without you. Be as upfront with potential buyers as possible, and don’t try to gloss over your business’s flaws. If your company has an underlying problem, prospective buyers should hear about it from you.
7. Be open minded in structuring the deal – if you really want to sell the business, there’s always a deal to be done. The key is being open minded in how the deal is structured, to get what you want. Your focus shouldn’t be on ‘how’ the deal is done, but rather, to reach that finish line. Remember that your business is an unknown quantity to a buyer, and it may be the first time they’ve come across the company. There’s a significant level of risk to a buyer, and this perceived level of risk increases the smaller the business is.
8. Use professional advisors – having a team of professional advisers around you can save you both stress and money in the long run. Selling a company can be complex and having a deal team (lawyer, accountant and corporate finance advisor) with the relevant expertise not only gives you the best chance of getting a deal over the finish line, but also ensures it is done appropriately and can save you money in the long run.
9. Address transitional issues – a key consideration, often neglected during the course of the sale, is the transition process. The buyer may request that you remain in the business for a period of time after completion. Alternatively, the buyer may not want you around at all, preferring to bring in their own people. It is important to address this early in the discussion so expectations are managed and, if necessary, a transitional arrangement can be mapped out. If you are the Responsible Individual or Registered Manager, have you identified someone in the business who may be able to step into that role as you transition out of the business? Of course, if you are to remain in the business after the sale goes through, this is an added incentive to maintain relationships and avoid unpleasant exchanges during negotiation.
10. Don’t neglect your business during the process – one of the biggest mistakes you can make is to start focusing on the deal and ignoring your business. This is a costly mistake to make because the deal isn’t done until all the paperwork is signed by all parties. If revenue or profit suddenly declines in the months leading up to the sale, the buyers could ask for a lower price as you near completion. It should go without saying that ensuring the standard of care and support is the best it can be at all times is vital. So, in the months leading up to the sale, make sure it’s clear who is focused on running the business and who will be negotiating the sale.
If you are thinking about selling your care business please contact Tristone Capital.