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
Business owners often view investors as an alternative to bank finance. In most cases entrepreneurs would seek to raise external equity because they are running out of cash and were turned down by a bank. The only message that investors would receive is that the entrepreneur lost control of their business regardless of how you dress the situation up. If you were an investor, would you want to put your hard-earned cash and invest significant amount of time in such a venture?
