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Client wants to sell his business

Client wants to sell his business

Client wants to sell very successful business due to long term illness. Staff have been made redundant. The company has been so successful largely due to his personal talent, I believe.

He spoke to a company (A) who specialise in business sales. They said they thought he could get £250k. He must pay £3,000 fee upfront before they'll do any prospecting for clients. On sale of business their final fee would be another £12k. They said there would an earn out period of about a year where client would still need to act as consultant/nurse the customers.

My client has an impressive customer list, and I am sure someone would buy that. The idea that anyone would want to pay for the vans and other equipment doesn't seem likely to me. Client is well-known/highly respected in his field, and A has told him the high quality of his brand will make it all a no brainer. What I can't get my head around is the fact that the business is worth anything like this amount without the longterm skills of my client. I would have thought the only value would be in the customer list and that he should sell off his vans and equipment sooner rather than later.

It sounds very rosy, but I am concerned. I had another client who tried these business sales companies a few years ago and found them to be rather dodgy, both in their promises and in their delivery. His business was a bit more niche than this one is, however. That other client eventually sold his business to a much larger company, having done all the prospecting himself. My current client doesn't have the energy to look for buyers, unfortunately.

I have told client of my reservations, that it could be £3k down the pan and a whole lot of frustration.

What have you heard about using these business sale companies, both good and bad? What about just selling the customer list?


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By JimFerd
19th Feb 2016 12:49

Did you client contact "Company A" or vice versa?

You could always ask to be present at any meetings with your client and the selling agent, and you can use your gut from there.

If they are adamant on an up-front fee - then I'd consider getting the client to shop around for other selling agents.

In terms of the agreement as a whole - it's difficult to say without knowing your client, but presumably the vans and equipment were used in your clients business, so it stands to reason that a potential buyers may use them. That being said, you and your client will have the best idea as to what sounds reasonable.

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19th Feb 2016 13:02

Upfront free
Quite a large upfront free and a potentially (likely) inflated valuation. What could go wrong?

I’d walk away and use a reputable company working on a commission basis.

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19th Feb 2016 12:58

All agents will want an up front fee for preparing the information memorandum. Entirely reasonable in my opinion. I think you will struggle to find one who will do that part of the work on a contingency basis.

The rest of the work should be covered by a success fee.

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19th Feb 2016 13:19

Upfront fee

I entirely agree that any company involved in selling a business will want an upfront fee.

What bothers me is how much work they will put in to get a good offer.

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19th Feb 2016 13:27


Moonbeam wrote:

What bothers me is how much work they will put in to get a good offer.

Client needs to ask them, and get it in writing in their engagement letter, and of course to shop around so as only to appoint the adviser who inspires most confidence in him.  

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19th Feb 2016 13:25

Not True

There are a number of business brokers that work on a success fee only. Sometimes a commission only broker might ask for an upfront fee, but is nowhere near the £3k quoted above.

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19th Feb 2016 15:06

Has the client used his knowledge of his industry and approached his competitors, who will probably be the ones to buy it via an agent

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By Clinton
19th Feb 2016 19:16

Hi everyone, this is my first post here.

I advise business owners going to market (and write occasional articles on the subject like this one on accountingweb's sister site). I also maintain an extensive knowledge base on UK business brokers, their charges, their terms etc.

None of the best brokers (incl corporate finance houses undertaking business disposal instructions) work without some sort of commitment fee from the vendor. It protects the broker against the vendor changing his mind halfway through the process ...which would result in the broker getting no compensation for all the work he has put in up to that point. The retainer is usually deducted from the "success fee" if the business completes on a sale.

To my knowledge there is no broker in the UK specialised in handling £5M+ T/O businesses who'll take an instruction without an advance. So I agree with John, above, on that.

Among the brokers who handle smaller businesses you've got a few who take an advance fee and DO provide value for money, but the large majority don't do very much. There's a reason this industry has the reputation it does. The Mirror newspaper has numerous articles on this (if you go to google and search for mirror business transfer agents you'll read some real horror stories).

The worst brokers are the ones who charge no advance fee and work purely on contingency payments. There are very, very few goods eggs in that basket. The modus operandi of the large majority is as described in those Mirror articles. From the description in the original post, this broker A is one worth avoiding.

Moonbeam makes a good point. Even if you do find a broker whom your research reveals to be reputable, how do you know you're going to get value for money? Many of them claim that the advance is used to fund a huge research operation to identify buyers. That can be a bit deceptive as I cover in one of the articles on my site.

BTW, cheekychappy, advance fees can be as low as a few hundred but most charge a few thousand, like KBS Corporate who charge £5K, and several - BlueBox, BCMS etc - who charge £30K - £50K + VAT.  Unfortunately, there's no easy way to tell where you'll get the best service and the highest probablity of the broker getting you to all your exit goals.

bernard michael, that does sound like a good idea on paper, but I've seen cases where the competitor then made public the information that the company was for sale and used that publicity to snatch[***] marketshare and employees. Managing the confidentiality is critical in these situations.

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20th Feb 2016 12:02

Thank you all

I would particularly like to thank Clinton for his comprehensive answer. I have emailed all the postings to my client, and having read the Mirror articles above, could see that just taking the upfront fee is not the whole story for the thugs. Whilst RDA is not the company A that I mention, I suspect that there are many more like them.

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By Clinton
20th Feb 2016 22:23

You're welcome, Moonbeam.

If your client wants to give me a call I'm happy to have a brief chat. And, no, I don't pitch any consultancy services at this call (I'm always oversubscribed and have a waiting list at the moment anyway). If he does want to run some quick questions by me he can get in touch via the website and book a specific day and time for the call.

I must add that there are some excellent brokers in the UK who do a fantastic job and it's worth the time and effort for vendors to do the research to find these brokers and conduct a bit of DD on each one.

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