I read an interesting article in the Herald Business section, Friday last week. It was written by Craig McIvor and titled “To sell your business for the best return, try thinking like a buyer’ and can be seen here: Craig McIvor Management article

It raises an interesting proposition for business owners who might be feeling the financial pinch or who might have taken one too many body blows and who might wish to sell their businesses in today’s market.

The premise is based on market conditions causing businesses and/or business owners to have to deal with low demand, continuing regulation and/or compliance costs and the high dollar, all being factors which affect the will of the owner and performance of the business. Therefore a sale might be the only option.

I think his recommendation to treat it like a project then is excellent advice. Create a value proposition, select and offer to a target market and then close the deal seems to all be good advice.

There are a couple of areas I think might be a little tricky, for the Kiwi business owner, which I have learnt through my business sales career.

1. Losing focus on the performance of the business during the process. As a business broker one of the real challenges of any business sales process is keeping the owner focused on the continued performance of his/her business. A business sale can often take up to 6 months from the original conversation to a period where a purchaser is doing their due diligence on the business. A lot can change in the performance of the business if the owner hasn’t been diligent on ensuring the business keeps performing to the level which it has in past years and which would have been forecast in the marketing of the business. You can understand owner’s thoughts that once the business is on the market they can now relax, they often move on mentally. This we believe is one of the more important functions of an experienced business broker and this would be more of a risk if the owner was handling all aspects of the transaction. Not impossible I would suggest but something that would need to be planned for. I believe this would even be the case where an owner wasn’t involved in the day to day operation of the business and only offered governance, because the management often, is a direct reflection of owners focus.
2. Offering business to “like’ companies. Creating a list of businesses that might benefit from the purchase of the business I personally believe is an excellent idea but one we are often frustrated with when dealing with the Kiwi business owner. New Zealand is a village and the majority of business owners are deeply concerned with the confidentiality of the transaction. Competitors and businesses that are in a similar industry would offer the most synergetic outcome from the sale of the business but also offer the most risk. It is a difficult hill to climb for a business owner to be able to run a process where he/she controls the flow of the level of information required by a purchaser to make a purchase and also keep information away from parties who are merely on a fishing expedition. It is difficult for a business broker with hundreds of transaction under your belt and almost impossible for an owner who might never have sold a business and who also has to concentrate on the performance of the business. Also it is often a bitter pill to swallow for the new owner of that business to know that most of the industry have Information Memorandums spelling out the IP and past and future performances of the their new business.
3. It is difficult recommending yourself. The classic understated Kiwi mentality means that is often difficult firstly for a business owner to ‘talk up’ the performance of the business to a purchaser and it is difficult for a purchaser to listen to a owner ‘talking up’ the performance of a the business in question and that is why there is generally a broker (or a another third party) involved to add the opinion needed to position a business successfully for sale.
4. Managing the people and the personalities. It is not as easy as a Trademe transaction to sell your business. A single party dealing with another party a number is agreed to and a contract signed. There are multiple parties to deal with, with each transaction. Assuming your business is a good business then all the parties you offer it too will be interested. You could have as many as 20 or 30 interested parties all of which have multiple parties advising and asking for information. It requires years of transactional experience to keep everybody happy and give the transaction the best chance of success. Why would you want to do this yourself?
5. Managing the offers. Again, if your business is a quality business you will most likely have multiple parties wanting to make an offer and enter a Due Diligence process. Most Kiwi purchasers will insist on an exclusive DD process before they would be willing to incur the cost of a DD process. So who do you choose, it is not as easy as the highest offer it is more important to ask who is most likely to complete the transaction. This is often the most difficult part of any process. There are also always questions about the intent of a buyer entering a Due Diligence process.

There a certainly more areas of concern but I feel these were top of mind after reading Craig’s article. Don’t get me wrong I agreed with virtually everything he said. The process he outlines is exactly how a transaction should proceed, my only recommendation would be to follow that process but don’t do it alone. Find an experienced business broker (or a third party that has the experience) you get on with, you trust and sit down and map out Craig’s process together as a team and you will give yourself the best chance to ‘sell your business for the best return’ by thinking like a buyer.