Take two businesses, of comparable size, revenues, and profitability. Why would one sell more quickly than the other—and for considerably more money?
Here at The Legal Director, it’s a question that we often ask clients, in order to illustrate the benefits of exit planning.
The reason isn’t difficult to discern. One of those businesses will have taken steps to address those aspects of its affairs that demonstrably add value, mitigate risk, and speed-up the due diligence process.
All of which makes it more attractive to a potential purchaser.
Lack of clarity
Put like that, the attractions of an exit plan are obvious. And yet, time and again, we see businesses that are difficult to sell, and which command a price significantly lower than their owners had hoped for.
To blame: unclear business structures, a lack of trading agreements with important customers and suppliers, flawed—or missing—employee agreements with key personnel, and inadequate protection against risk.
The potential buyer often has no clear understanding of how much of the business’s real value resides with its owner, in the form of the owner’s knowledge and relationships, or how much of the business’s value is at risk from missing or poorly-structured policies and procedures.
Which from the buyer’s perspective, makes it all too easy to drive down the sale price.
View it through a buyer’s eyes
Of course, as a business owner or shareholder, you may believe that critical customers, staff, and suppliers won’t defect, or would simply not join you if you were ever to set up another business.
As a business owner or shareholder, you may find your existing policies and procedures to be perfectly adequate.
And a complex business ownership structure, and privately-held fixed assets such as land and buildings, may have suited your purposes in the past for any number of perfectly valid reasons.
But the point is that a potential buyer will not know—and cannot know—that critical customers, staff, and suppliers won’t defect. They will form their own view as to the adequacy of policies and procedures. And opaque ownership structures that suit your purposes may not suit theirs.
Trying to address these issues in the weeks immediately before a sale can be very difficult. In a business that has been built up over many years, it takes time to unravel such complications, and put in place alternative policies, agreements, and arrangements.
Often, there has been little consideration given to the eventual sale of the business, and things have simply evolved, for operational reasons.
And not every business owner has the luxury of being able to dictate the precise timing of a business sale.
What would happen if you—or your heirs—had to put a sale process in place tomorrow?
How we help
At The Legal Director, we can help with business exit planning.
One of our part-time legal directors will work with you, looking at every aspect of the business through the eyes of a potential purchaser, identifying and resolving those issues which would impact the business’s saleability and eventual price.
What’s more, we’ll advise you as to how to maintain that state of saleability, going forward.
The result: a simpler, more saleable business, with fewer risks to deter potential buyers.
So that when the time does come to sell, you’ll be able to sell it more quickly, and achieve a higher price.
And isn’t that what every business owner wants?
As ever, we can help and advise on these things.