Even for the most experienced business mind, selling can feel like a difficult and challenging time, both emotionally and strategically. Because of this, it’s important to ensure you’ve considered the decision from all angles.

Here are some key questions you should ask yourself before you put your business on the market.

Question 1: Why do you want to sell your company?

People start a business for many different reasons. 

You may be a technical expert who started out selling your expertise, but found that you needed other support to enable you to do that more effectively. From the early days (just you and your book-keeper), the business may have grown organically, with other experts, managers in finance, sales, marketing… all of which means you spend more time managing the business than you spend doing the thing you love.

Or you may have started out with a desire to grow a company that you can sell. You may have had a clear growth strategy, and built your business to deliver against it, designed to maximise its value to potential acquirers.

Or, like many business owners, you may be somewhere in between – with business goals that have evolved over time to reflect your personal circumstances, market forces and the opportunities you’ve made along the way.

When you think about selling your business, which of the following come to mind?

• Being able to stop working and devote your time to leisure, family or charitable pursuits
• The chance to invest in a new business idea you’ve been nurturing
• No longer being responsible for staff, payroll, contracts and other headaches
• Becoming an employee rather than a leader and manager
• Enabling your business to grow in a way you couldn’t achieve by yourself
• Capitalising on ‘the golden moment’ when your business is at its peak and the market is primed for your sale

Being aware of your own drivers for selling will give you some criteria for assessing different structures for your deal. It may also indicate that selling the business isn’t the best way to address your needs right now. 

Think about whether your needs would be better met by building a management team who can function more effectively with less of your time. Or by seeking some investment to fund your future growth without losing control of your business. Or even just by a bit of restructuring to improve your work-life balance. There are lots of ways to change the dynamics without selling your business… 

Question 2: Do you have a walk-away number for when you sell your company?

Technically, you have two walk-away numbers. The first is a number so low, you stop and walk-away from negotiations. The second is a number in the right price-range that makes you walk-away from your business (resulting in a successful sale).

Think about what these two amounts are, and what offer would truly make a decision for you, either way. Any buyer will likely have their own ‘walk-away’ numbers, and the key here is figuring out whether your acceptable valuation range is likely to overlap with the market’s expectation of value for your business.

There are many ways to value a company. One of the most common is a ‘multiple of earnings’. So for example, if your business made a profit of £1million over the last financial year, and it’s valued at ‘5 x earnings’, that would give you a valuation of £5million. The multiple applied to your business will vary according to the kind of business you have, and the potential for an acquirer to grow it. 

For businesses that are based around recurring revenue, like those with SAAS and subscription models, valuations are often calculated on a ‘multiple of Annual Recurring Revenue (ARR)’. Companies valued on this basis can achieve high sale prices even while failing to make a profit, on the basis that they offer an acquirer lots of potential for building profitability from their installed base. 

A corporate financier will be able to guide you on the likely multiples for a business in your sector, at your evolutionary stage – let us know if you’d like an introduction to someone who can help with this.

Once you’ve been through this exercise, you’ll be in a better position to decide whether a company sale will deliver you the amount of money you need to achieve your own personal objectives. This might tell you that now is exactly the right time to put your company on the market, or that you need to consider some re-engineering or drive further growth before you launch it for sale.

Having a good idea of your walk-away number early on allows you to be much more objective about the potential sale. When an offer materialises, you need to have something objective to compare it to – it’s easy for these large numbers to become abstract, or for an emotional response to cloud your rational judgement. It also ensures you won’t take an undervalued deal because of negotiation pressure or (real or constructed) time constraints.

Question 3: Are you willing to stay with the business for a while after the company sale?

Depending on why you want to sell, the possibility of staying with the business for a year or two after the sale may be appealing (all the fun but less responsibility!), or appalling (all the responsibility but none of the authority!).

Many transactions these days involve an element of ‘earn out’, where the founder is required to stay with the business for a period of time post-sale to help it meet certain targets or objectives. Often, a proportion of the sale price is only paid when the business has met these targets, and only if the founder sticks with the business until the relevant timescale is up.

It’s important to be realistic when planning a sale. If you have thoughts of signing on the dotted line and then setting off on a round-the-world sailing trip with your hard-earned cash, you might need to re-evaluate.

If you’re not keen on working in your business for somebody else post-sale, you will need to make sure that your business can operate perfectly well without you, before you put it on the market. If you have an essential role in any element of the business, you’ll need to establish alternative ways to fulfil that role. This might involve succession planning, outsourcing, delegating or any number of other possibilities. 

The amount of your time and energy that your business will need post-sale will also depend on who acquires it. A trade buyer who’s already proficient in your sector, and has established teams covering the essential areas of business operations and sales, will have less need of you post-sale than a private equity buyer, for example. 

If you are willing to stay on under the new owner, think about how much control you’ll have over how the business will be managed during this time, and how much impact you can have on its performance. Any earn-out payments will probably depend on the performance of the business during a period under the new owner’s control, so you may not have as much control over your destiny as you would like. 

Question 4: How do you want to manage your transaction?

Selling your business is time-consuming and absorbing. It will take up far more of your time, money and emotional energy than you could ever anticipate. You will find, especially if your business is worth a lot of money, that you’ll be overwhelmed with offers from advisors wanting to help you sell it. 

There are certain tasks that it’s very difficult for you to do for yourself, and for which you will almost certainly need professional help. Reviewing, negotiating and preparing the legal documents around the sale is not a job for an amateur, so experienced, professional legal advisors (like Devant) are essential. Understanding the numbers involved is also a complex area. Figuring out working capital, calculating the variables on which the valuation will be determined, and preparing completion accounts are all highly skilled tasks which may not be within the scope of your own internal finance person or local accountant. Structuring the most tax-efficient deal is another area where specialist advice should be sought, and as early as possible in the process, as it can have a significant effect on deal structure.

These services are generally charged for on a time-spent basis, so you will want to choose wisely and ensure that your advisors use their time, and your money, effectively. Big firms can offer breadth of expertise, but may ‘flood’ your meetings with large numbers of advisors, costing you lots of money while adding relatively little value. You may feel that it’s helpful to have plenty of advisors to pull together information for you during the process, and conduct financial analysis. Expert help is definitely useful, but be aware that ultimately, much of the decision making and information gathering will come back to you – and you may find yourself simply becoming a ‘servant’ to your advisors, while paying handsomely for the privilege. 

There are other areas of the transaction that you may choose to do yourself, or to work with specialists. Preparing a good Information Memorandum can make a huge difference when marketing your business and approaching potential buyers. If you have no idea who would be a good buyer for your business, and want help researching the market and identifying potential acquirers, a corporate financier will be able to assist with this. They will generally charge a mixture of up-front fees, ongoing marketing fees and a success fee as a percentage of the sale price.

However, if you know there are only a couple of potential acquirers who would be a good fit for you, and you have personal relationships with them (or direct routes of introduction), the investment in a corporate financier may be unnecessary. You may prefer to work with a good commercial and legal advisory firm, like Devant, who will collaborate with your financial advisors to negotiate your deal.

You will also want to think about how involved you want to be in negotiations on a day to day level. Bear in mind that you are the key decision-maker, so no matter how wonderful your advisors, you won’t be able to delegate responsibility for the entire deal to them. So you need to find people that you trust, and can work with, who will support you emotionally as well as practically through the deal process.

Question 5: Is this company sale really what you want?

A final and crucial questions to ask yourself is “Do I want this?”

Many business owners find themselves carried away in the negotiation stage of selling, and don’t take time to consider what they want and how it could affect their life going forwards. Before signing on any dotted line, ensure you’re comfortable with the decision and excited about the future.

A (no obligation) conversation with Devant can help you work through all of these thoughts in a structured, non-judgemental way. Our focus is on getting the right outcome for you, not pushing you into a sale you’re not ready for. You’ll find your Devant consultant an invaluable ally in assessing your options, identifying risks, and making an informed decision.

When you’re ready to move onto the next stage, take a look at what’s involved in pre-due-diligence, to get the business in tip-top shape and maximise its sale value before it goes on the market.