Who are the buyers
If your business operates in the 800k-10million-turnover bracket it is important you know about your options.
1. Private Equity firms typically invest in business achieving 10 million+ with significant growth potential and established management teams who can remain in the business post-acquisition. In most cases, they won’t entertain sub-£10million revenues businesses which excludes one of the most active and deep-pocketed sections of the business buying community.
2. Larger Competitors are a realistic option when it comes to selling your business as they can pay a premium price because of strategic advantages. However strategic and synergies often involve firing a large portion of your workforce, changing the company name and transferring your clients into their operation. Not to mention requiring you to continue working for their larger organization (Congratulations on your new job).
However, the dark side of why larger competitors explore buying your company is a cover-up for a more sinister motive. They may really be seeking to learn commercially sensitive information about your business and then proceed to engage in some form of corporate sabotage.
3. Private Investors are a regular source of enquires about buying your company. However, most buyers in this category are first time buyers and often lack the experience, expertise, and ability to finance and complete a transaction. However, for those who make it through they are more likely to keep in it one piece unlike many corporate buyers of small businesses.
Valuation differences between large and small companies
At Reid Green & Co I have long been a student of industry structure and market share distribution. I’ve observed that many industries (obeying the 80/20 rule) either have a small number of big players and on occasion, a single company dominates most of an industry's market share. Typically, when these companies are sold, they receive premium valuations, which is appropriate given their market positions.
The problem though is that the rest of the market may misconstrue the price tag of a large player as the fair value of all companies in the same industry (At least in terms of multiple of profits).
In reality and a corollary to the above is that the smaller players fight for and share the business left over by the market leaders and very few businesses become assets of value independent of the owner.
In short, smaller companies are valued at less than big players in the same industry and the owner dependence often pushes the valuation further below the prospective businesses seller expectation. Of course, exceptions always apply.
Why is this statement of significance?
While larger businesses are intrinsically more valuable and less risky investments from a buyer perspective, smaller businesses (operations under the £10 Million turnover marker for example) carry baskets of risk for business buyers, such as:
1. The concentration of goodwill and operational knowledge tied to the owner
2. The team being overly dependent on one or a few key people
3. Unable to access higher-level finance (that doesn’t require personal guarantees)
4. A high concentration of revenues in a small handful of clients
5. Lack of managerial support for the owner
6. Little to no reporting of key operational information
7. Lack of systems and business protocols
8. Little to no financial expertise
9. Clients could leave with little to no barriers
If any of these examples look familiar, it might be the factor that deters a buyer from making you the kind of offer you want to say yes too!
The good news is as a business owner these things are under your control, and it is not too late if you act now.
So how do you achieve the dream exit you dreamt of?
It’s safe to assume you built your business in a certain way to satisfy the needs of your clients.
It is in a similar manner you must design the business in a certain way so that a buyer would logically have to make you an offer you can’t refuse.
This because you have proactively and systematically reduced risk throughout your business and have a clear and quantifiable opportunity front which can be proved and therefore reflected in the price.
This requires looking at your business through the eyes of a buyer like you would look through the eyes of your clients when selling your product or service.
This perspective is what we at Reid Green & Co can help you with as buyers of businesses.
Ok, that makes sense but What happens if you leave it for a couple of years?
Selling your business is supposed to be the biggest payday of your life, 6,7 and even 8 figures. It is, therefore, one of the most important parts of your whole business career, yet very few business owners give it the recognition it disserves.
If you find yourself overwhelmed by the day-to-day running of the business and do not plan the exit you might find yourself:
1. Selling to who you don’t want to sell to
2. Selling for the price you don’t want to sell it for
3. Not selling at all and eventually become forced to close the business
The most important part of your career was supposed to finance sailing off into the sunset with your sweetheart, however, it can ultimately become the most disappointing part.
It’s a serious problem, but solving problems is what business people do.
So let's Solve the Problem
Start now, create a plan to de-risk the business, bring in the management you need to replace yourself, build a sellable income-producing asset and your options will start to grow.
If you would benefit from a partner to carry out a plan like this get in contact with Reid Green & Co we are a private investor who can partner with you to drive shareholder value.
Due to the nature of investing in businesses we can only partner a small number of companies at one time.
To schedule, a call on a nothing ventured nothing gained basis
Email Joash Reid at [email protected]
