When you run your own business, you have enough worries on your plate. But when you come to sell, you face an unfamiliar challenge. Potential buyers will want to get under the bonnet of your business and ask all kinds of questions you’ve never had to consider.
Below are five of the toughest questions a potential buyer of your business might ask – and how to work out the answers.
1. Will you lead the business for a further three years after the sale?
Buyers often want someone on board who knows the business and the market to mitigate risks and help integrate the business. Ask yourself: could I work for somebody else and, if so, what will my motivation be? Once you’ve worked that out, scrutinise the deal to be clear about what’s being offered.
2. Would you help us to rationalise and integrate your business into our core and wind down your operation?
"It’s down to personal choice" says Martin Brown, CEO of Elephant’s Child, an SME growth adviser. "Many entrepreneurs are emotionally attached to their business and take a moral and ethical interest in how colleagues and employees will benefit. So, think about what a good buyer looks like to you and whether your potential buyer fits that profile."
3. What are the biggest risks impacting your earnings/growth forecasts?
It’s crucial to carry out a professional, comprehensive and accurate risk assessment. You need to demonstrate that you have identified and understand the risks to your business, have acted to mitigate or remove them and put adequate monitoring and protection in place.
4. Do you mind if we only purchase the business assets?
"It’s common for larger organisations to acquire the company assets rather than shares." says Dr Anthony Thomson, growth planning specialist with Elephant’s Child. "Assets such as IP, brand, digital, customer contracts, stock, plant and machinery, are transferred and enables buyers to leave behind unfavourable contracts, various liabilities, pension debt. The seller is left to use sale proceeds to pay off company debt and windup costs, the key question is: does this fit with your exit strategy?"
5. Do any key customers, suppliers or other relationships depend on specific individuals?
Trading on personal relationships can be risky and lead to a discount to the business valuation. "You must have people to take over your important client relationships." says Thompson. "Ensure you have comprehensive, demonstrable succession plans for all management and key staff in order to keep your customers."
Whatever your aspirations, by starting the conversation about succession early, the future direction of your business can be defined and planned.
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If you have any questions or would like to arrange a no-obligation financial review of your business, please do not hesitate to contact us.
*Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James's Place Wealth Management.
Elephants Child Consultancy provide a consultative, analytic approach to leading, developing and implementing successful business strategies. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James's Place.