What you need to know when considering selling your company
Updated: Sep 15
Selling your company is a major decision and by knowing in advance how the sale can be carried out successfully will give you a major advantage. Here’s 5 top tips to guide you.
Valuing a company is more difficult than selling a house. It depends on how much the buyer wants to buy, and how much the seller wants to sell. It depends on many factors such as the cost of integrating the company into the buyer’s company. You may consider this to be their problem, but they will want to take these costs into account and will consider them part of the cost of purchase. Every asset will be examined, and question and every debt taken account of.
5 top tips to remember when selling your company:
1. Keeping focused on your own value:
When the company that I sold went on the market we wrote a note giving the amount of money we realistically wanted for the company. This did not preclude us from trying to achieve more and it did not protect us from being beaten down by tough negotiation. However, it kept us grounded and focused. Ultimately, we sold for a figure less than 10% from the predicted figure.
2. Finding the right route to sell:
There are a dozen and one websites offering to value your company. They are, in my opinion, worthless. They are, almost without exception, marketing ploys to get your details and offer their services to sell your company. Be very careful. In most cases they will expect an upfront fee. Why? Because they are playing a numbers game. They take as many fees as possible and sell a few companies to justify their claims that’s this is their stock in trade, but in fact, they are fee gathering companies with very little concern about selling your company and putting in the massive work its takes to achieve a successful sale. Try asking them to take a percentage of the sales price after the company is sold. The line will go quiet.
3. Time matters & overnight things change:
The value of your company can also be very volatile. The property market tends to move steadily, even predictably, with the occasional market correction. Company valuation can change in a day. For example, if the company sells in Euro, the value can change as the exchange rate changes. This happened to our company, changing its value over night.
Base your valuation on Earnings before interest, tax, depreciation and amortisation. (EBITDA). https://moneyterms.co.uk/ebitda/
Its good starting point. At the very least it will give you a benchmark to follow the valuation of your own company.
4. Understanding your company’s worth
The next stage is to work out how much someone would pay you to own a company with that level of EBITDA. Effectively this means how many years the buyer is willing to wait to get their money back. Generally, this will be the least amount of time possible. Perhaps 2 to 3 years. In exceptional cases it may be as high as 5. However, the continued flow of reliable profits gets harder to predict the further into the future you look. If you have long term contracts with customers these can provide a foundation for arguing for a long-term valuation.
Therefore, as a starting point calculate the companies EBITDA and multiply by 2.5. This will give you a basic starting point and one you can monitor and refer to it during negotiation.
5. Bringing your company to market
You will already know your market, your customers, and suppliers. Unlike selling a house you probably already know the company or person that will buy your company. Speak to trusted suppliers and customers to find out if there are the people interested in what you do, your products, your IP, your markets, your contracts. Things you take for granted may be much less easy to do than you have made it appear. Look for serial purchasers. Some companies expand by buying others. Keep abreast of changes in the market, who owns who and who is looking to expand into new sectors. Your will have to approach some of these companies directly and some, most in fact, will say no. Selling a company is no different to selling your products, you have to make sufficient effort to find a suitable buyer.
If you are considering selling your company or want to discuss your situation in more detail please do not hesitate to speak to our expert on 07860 607815 or email email@example.com.