Succession Planning: Business owners favour MBO as means of selling business

Whilst the economy continues to wobble with an increasing number of vendors struggling to find trade buyers for their ventures, more and more business owners are considering management buyouts (MBOs) as an option of selling their businesses.

Retiring Business Owners Need Not Struggle to Sell Their Ventures

In the article, Shortage of Buyers for Retiring Vendors, in The Telegraph of 13th December 2010, Richard Tyler talks about difficulties that business owners encounter when they are looking to sell their businesses and retire.

He says that vendors struggle to find buyers for their ventures due to the uncertain economic environment and face closing their businesses instead or continue running their firms into their late 60s. Staff may also find it difficult to raise the necessary finance to buy owners out because of bank lending policies.

Although potential investors might not pay the multiples that we saw only 3 or so years ago, there are a few things that baby boomers can do to ensure their comfortable retirement:

• Business owners ought to start looking at Exit Strategies early in the process. This will allow them to set their goals and targets and monitor their business's performance
• Set realistic expectations in terms of the price they want for their businesses. When selling a business, most owners will engage the services of their accountants and business brokers. We often see overinflated prices whilst bidding wars commence; however, it is the seller that is left disappointed in the process as their business "sits on the shelf" for months or sometimes years
• Get an independent valuation carried out early as it will give retiring business owners a better understanding of the areas they may need to improve
• Vendors may want to consider selling their businesses to staff and should involve their existing management teams in advance to avoid a bitter disappointment when their staff cannot come up with the cash
• Engage professional services: business disposal experts, such as M&A lawyers, corporate finance specialists and business advisers will add value and help owners to get closer to their target price
• Review and streamline processes and systems in the business to make it more attractive to potential buyers. After all, investors would be more willing to pay the price closer to what the owners have in mind when the business is running "itself"
• There is also another option available to retiring business owners: Deferred Consideration. It is often more beneficial and profitable when part of the money is deferred for 3-5 years. The sellers will get part cash up-front and the remainder at the end of the term. This will remove the pressure on the buyer to raise the whole amount up-front, raise more confidence in the business they are looking to buy and make the transaction much easier

Liquidity in Business – Where to Look For Help

We all hear on the news that the banks don’t lend and businesses suffer through lack of that support. But why don’t they lend and where can SMEs go for help when a business has a viable product or service but all that it needs is finance?

Firstly, contrary to what we see and hear in the media, banks still provide lending to businesses. However, their criteria have changed as they had to tighten the rules. For too long did the banks provide finance to businesses that would not be able to afford it or would not qualify for. In addition to that, was it the right type of finance in the first place? But let’s not dwell on things that happened in the past. It’s onwards and upwards, as they say...One good thing that some banks are doing is actively trying to help businesses by providing information on how to manage your money and trade through the economic downturn. One of such banks is RBS with their Money Sense for Business. Have a look at their latest information page.

If you are looking for finance for your business, firstly, identify what the loan is for. Is it for training? Purchase of assets? Or another type of project in your business? This will provide you with a number of options of what type of finance you would need and where to go for it. There are numerous options out there on the market. If you are not sure what finance to apply for, click here for help and speak to your accountant or another independent specialist / business advisor who will be able to advise and help you.

Once you know what type of finance you require for your business growth and development, be sure to prepare to answer a lot of questions!Here are some tips to prepare an application for business finance:

• Get your Business Plan up-to-date
• Clearly state what the finance is for. Outline how this finance (or what it is for) will assist your business
• Do your research. Find out who your main competitors are and what makes you stand out from them
• Get your financials in order: it is usually a requirement to supply 3 years’ accounts for established businesses.
• In some cases lenders would accept Management Accounts
• Get your business and personal bank statements for the last 6 months as some lenders will not consider your application without them
• Prepare a details cashflow forecast. Remember, you must demonstrate that you can afford this borrowing and it will not drain your business and personal finances

There are also other options for businesses, such as De Minimis Aid, which includes various schemes either provided or supported by the government. These include:

• Small Firms Loan Guarantee Scheme (SFLGS): this is where a security is required by a lender, but it is not available from a business or its owner(s). If a business is qualified for such a scheme, the government will underwrite 75% of the loan. You may still have to find the remaining 25% worth of security though
• Government grants through Business Link and Local Authorities
• Train To Gain

Contact the relevant body to seek further information.