A business owner looking to cash out from Robina, Queensland asks:
I own a profitable
company with $12 million in revenue. The business is growing and has a
bright future, but I am now 63 and would like to retire. Despite being
in business a long time, I’ve never sold one and am not really sure
where to start. I’d be grateful for your thoughts.
Kenelm Tonkin, Chairman, Tonkin Corporation answers:
Start by asking, "Who should lead the sale process?" There are three mistakes frequently made by proprietors in this situation.
First, a founder should never conduct the transaction. Impartiality
is required. Also, while entrepreneurs believe in themselves, there is
nothing to suggest that people who run businesses know anything about
selling them. Avoid this pitfall.
Second, a common error is to choose the wrong advisor. Business
brokers and investment banks, who service small and large businesses
respectively, are inappropriate here. A mid-sized enterprise requires a
middle-market corporate advisor. While selling is the core skill of
brokers, bankers and corporate advisors alike, when you engage such a
person or firm you are buying their contacts, their rolodex of
acquisitive companies and cashed-up investors. So, matching your company
to the right advisor is vital. Look for one who has led sale
transactions for businesses of the size and in the industry of your
company and who is skilled in creating a market. Speak to
referees about the advisor’s record in identifying buyers, creating
competitive tension between them, handling objections, and negotiating
transactions to finality. Accountants who prepare standard tax returns
do not have this skill-set.
Third, once an appropriate advisor is found, negotiate terms which
work for you. Typically, they require a retainer to cover costs
regardless of whether your business is ultimately sold. This is
understandable, but restrict the retainer to a monthly amount for a
limited number of months, and have all of the advisor’s out-of-pocket
expenses included in that retainer. Advisors will also require a success
fee, usually defined as a percentage of the realised price. Dangle the
carrot. Negotiate a lower percentage for a low sale price and a higher
rate for a superior transaction price.