Best laid plans: Business sales up in the air

Life may be what happens when we’re making other plans, but exit planning is often what happens when life's other priorities intervene.  

S&W’s recent Business Owners Sentiment Survey (The BOSS) showed that while many business owners have an exit plan in mind, it’s far from set in stone. In fact, of those surveyed with a business exit strategy, 85% said they had changed their timescales in the last year, with respondents split between moving their planned exit forward and pushing it back.  

Only about one in seven (15%) said they had made no change.  

That’s not so surprising, according to Mark Brockway, S&W Corporate Finance and Transactions Partner. Change is inevitable, he says.  

On the one hand, as the full report reveals, businesses have been impacted by a wide range of events in the last six months, from rising energy, raw materials and staff costs to global political uncertainty. And they face an equally wide array of issues looking forward.   

But company specific and Individual issues are as likely to prompt a review, says Brockway. That could be for business or personal reasons: The company may have reached a stage where it needs investment to grow or, equally, the owner may find they need an injection of funds or a succession plan.  

Even among just those business owners who had brought their business exit strategy forward, the survey found a wide range of factors driving the decision, from proposed changes to business property relief (BPR) on inheritance tax to personal finance challenges and divorce. 

As Brockway puts it: “Life happens, and plans change.” 

As a result, the best exit plans – and business owners – are flexible.  

On the one hand, owners must be patient, even though there are buyers about. For business sales of promising smaller firms there’s still significant private equity interest, says Brockway - either as a platform for further acquisitions or an acquisition for corporate groups already backed by private equity; for larger businesses, international appetite is undiminished. 

“The US continues to see high valuations in some sectors, so private equity and strategic buyers there often look to the UK,” he says. However, even where businesses quickly find a buyer, current economic uncertainties mean transactions are taking longer to conclude.  

“It now typically takes nine to 12 months to get a deal over the line.” 

On the other hand, plans for a business sale can also be accelerated, whether due to external events, personal pressures or just the right buyer coming along. That means business owners must be ready to move. 

With that in mind, there are two things business owners can do to prepare and improve the prospects of a successful exit.  

The first is to have their equity story ready for the buyer.  

That means starting to develop the monthly information that any buyer will want to see to build a picture of the business: Not just financial accounts but operational information, with key operational metrics and other information underpinning the valuation. 

“Buyers won’t just look at a single year. They want to be able to see the trend and evidence of the business’s integrity and resilience,” explains Brockway. Such data also lends credibility to any forecasts later presented to the buyer.

Businesses seeking a sale will need this information at some point, so it makes sense to collect it as they go, which will also help the entrepreneur decide when the time is right to engage with buyers. 

“It’s more expensive and time-consuming to go back and recreate this data if you don't produce it along the way,” Brockway warns.  

There is also a softer side to presenting the best case for the company, he adds: “Don’t neglect PR and your brand.”  

Newspaper and magazine profiles, interviews, awards, anniversaries and accreditations can all help to build a business’s online profile and help demonstrate its reputation, culture and values. “It’s about putting you on the map, and it will all be picked up in a buyer’s research,” says Brockway.  

“Business owners are often reluctant to do this, but you don’t want to be the best-kept secret when you come to sell.” 

Once business owners are ready to sell, however, they also need someone prepared to buy the business at the right price. Consequently, the other thing they can do is to think seriously about the other party to the transaction. This is another reason exit plans need to be flexible, says Brockway. 

“People can think that when they’re ready to sell there will always be somebody to buy the business. That's not always the case.” Finding the right buyer for a business can take time.  

“You need to be talking to the market to find the best home for the business. It’s something we spend a lot of time doing,” he says.  

As a result, the relationships S&W's team forges with clients often begin well before a transaction, helping business owners plan and prepare for a sale, while making discreet enquiries with potential buyers.  

“The right time to sell is often when the right buyer is ready, and that’s the value an adviser who knows the market can bring,” concludes Brockway. “The real power in what we do is bringing clients the right buyer or investor for them, so they can focus on building their business until the time is right.”