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Shortcut to disaster: Poorly managed business sales - and the accountant's role in preventing them
20th May 2019
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Selling a business is a minefield for your clients, but how can accountants help when they are often the last one to find out? The only way, argues Norman Younger, is to be proactive.
In my role as a business broker who specialises in working with accountants in the sale of their clients’ business, one of the most common gripes I hear is that the accountant has been the last one to find out rather than the first.
This hurts everyone involved. It hurts the accountant’s pride, who is supposedly a trusted business adviser to their client, but most importantly, it hurts the client’s finances. Bad advice -- or worse, no advice -- can ruin a lifetime of toil and sweat to bring a business to the cusp of a successful sale.
Just as a parent only sees the good in their child and is blind to their shortcomings, clients see their business through rose tinted spectacles. Most good businesses have been nurtured by their owner, who is often the founder too, with passion and attention over a generation and at the expense of family life.
Clients aren’t just too close to their business, they are their businesses. And this makes a rational, neutral assessment of their companies nigh on impossible. The reality is, as accountants well know, almost every business will have issues that require addressing. It’s the nature of the beast.
A business may function well on a daily basis and even be on a growth path when it’s time to exit. However, an outsider who is committing time, energy and money will be conducting due diligence and, sure as day follows night, they will flag issues that to them are important and may be deal-breakers.
These could range from uncollected debts that are festering on the balance sheet, to contractual issues with the staff and anything in between. Accountants are of course cognisant of and experienced in such issues and how to address them. But it can take time to sort, perhaps a year or longer.
When a business comes to market too early, the downward cycle on price commences with the first potential buyer. They either knock back on price, which the seller rejects or they walk away.
After six months or more when several suitors have kicked the tyres and inspected the engine bay, the owner usually wakes up and smells the coffee. But it’s too late as word gets out, however robust the non-disclosure terms may be, and the market does its job.
Eventually the seller realises that a lower price is their only option as they are worn down from the process of meeting buyers and letting them in to perform due diligence. They take their eye off the ball and the staff get unnerved. You can see where this all leads to.
The second issue is that all agents will require a commitment and marketing fee. The problem here is that many firms are like sausage factories and make their bread and butter from these fees, especially on smaller deals. The business owner can be sucked into a vicious circle of pushing them to market better and in turn they request more money to cover the costs.
Thirdly, it is important to choose a broker that has the requisite experience and contacts in the sector within which your client operates. Online searches will throw up a handful of brokers who specialise in florists, kiosks and takeaways, but are they going to get the best deal on a fabricator or distribution business worth a £1m or more? I think not.
How do they know which firm of brokers is most suitable for their business? After all, they are unlikely to have done this previously and in all likelihood not going to do it again so the broker has little incentive to take a long term view from a client relationship standpoint.
Some brokers are merely shopfronts whereas others are more discreet but have a robust “black book” of connections and are trained negotiators who can wring out the extra hundred grand or two from a buyer who is keen for a strategic deal.
So what can you as their accountant and trusted business adviser do about it given that you are often the last one to find out?
The solution is simple and is hiding in plain sight. Your role is to get in first by engaging with your clients on the subject of retiring and ensuring that their timing is correct and that above all their cherished business is actually “sale ready”.
The process of grooming a business for sale can take several years so it’s never too early to start the conversation. It can take the form of a letter to your clients, a mention in your newsletter or perhaps even lift the phone (remember them?) and invite them in for a review of their business.
They also need to understand that you not only have experience in this field but have built relationships with the right brokers who can command the best deal, and in a timely manner.
Better still is a holistic approach on an ongoing basis until they “get it” and make you the first person the call when they decide to sell.