By Charlie Kerlin, Director, Corporate Finance
Many business owners don’t have the option of handing over to the next generation for many reasons. Some will have their business asset as a key part of their retirement pot. Others will feel that their children will not want or, in some cases, don’t have the ability to take the business to the next level.
Statistics show that only about 30% of family businesses are successful in the second generation, whilst just over 10% continue successfully for a third generation.
Increasingly in Northern Ireland, we are seeing businesses with significant ‘external’ investors. To provide the necessary return for that investment there will (or should be) a proactive plan which will often involve the sale of the entire business in a five-year period.
Regardless of the motivation for sale, the most successful sale processes are those where a significant amount of forward planning has occurred, and actions taken well ahead of any disposal process.
The old adage, ‘Fail to prepare and prepare to fail’ is also relevant for those selling their businesses.
Having personally led over 50 successful sales in the last few years, I have seen first-hand that there are a number of common themes which business owners should be considering now to enhance future disposal values.
As obvious as it sounds, make sure you approach the right strategic buyer. They will pay the best price for the business. You need to ensure you fully research the global market, as the most appropriate purchasers may very well be located outside Northern Ireland.
In a recent transaction, bidders were sourced from China, Poland, the Republic of Ireland and Great Britain. Specific targeted information to individual buyers is also required to best present the opportunity to them.
Reduce the dependence of the business on you. Buyers know that post-sale you are unlikely to be as motivated as you are now. They will be looking to those staying on to transition relationships, especially with customers, other staff and suppliers. These people should have been empowered and suitably incentivised pre-sale to help drive the business forward under the new ownership.
Don’t fixate on deal multiples but focus on maximising sustainable profit. Ensure that there is sound visibility on future earnings by renewing profitable contracts. Critically assess your costs so that there is no deadweight in the business. Only approve capital expenditure that is critical to the ongoing operation of the business. Maximise cash by ensuring that you are not carrying excess stock and that you have a clean trade debtor book.
Obtain the correct financial and tax advice early. Choose a team that has the experience of successfully selling businesses. Your advisor should ensure that you continue to remain focused on the business whilst they do the heavy lifting with the deal.
Owners can make the mistake of appointing a party that does little more that put your details on an advertising portal. You should expect, and indeed will need, more.
The disposal of a business is arguably the most important transaction that an owner will make. For most, this happens only once, so do all you can to get it right.
For further information or advice, Charlie Kerlin can be contacted at charlie.kerlin@ie.gt.com
Grant Thornton (NI) LLP specialises in audit, tax and advisory services.