Making the decision to sell your business is never an easy one.
If it’s thriving and you’re scaling, should you keep going and build it to its full potential or get out before it starts to dip?
It’s a high risk, high reward game, and nothing is certain from the outset.
We brought together an expert panel – who’ve been through the process and come out the other side – to give you advice and honest answers about the pros and cons of selling your business.
Alice Weightman, CEO and Founder or Hanson Search and The Work Crowd, moderated our panel of entrepreneurs and experts including Anna Korving, Chair of Hanover Health, Rupert Ashe, Founder and CEO at D5 Capital, and Tony Spillet, National Head of Tech & Media at BDO.
What are the stages people need to think about when considering to sell their business?
Anna: Finding an acquisition partner that is aligned with your vision for the future of your business is key. If you’re thinking of selling, and your intention is that the business and the people within it will continue to grow and flourish, then you need to find a partner with the ambition to make that happen. Bringing your leadership team on side is also important. There are confidentiality issues, so you need to tread carefully, but getting your senior team on board will help make the process go smoothly once the acquisition has been announced.
Signing the deal is only the start though, and there’s no time for a honeymoon period through your earn-out! Be prepared for seller’s regret. It can be a really tough process, but if you keep your eyes on the prize then you will get the result you’re after in the end.
Rupert: The most important thing is to make sure your buyer has cash! Everyone wants to buy a market leader. You should sell when your business is strong, not when it’s coming down. If you have a scalable model, then scale. If not, may be best to sell. And if you decide to sell, you need to make sure that your people come with you through that process.
The first business I sold, I thought I was going to be pulled along on a chariot through the process. It was not like that. I was the one pulling everyone else along. You must have something different and new that people want to be a part of.
Why do sales fail?
Rupert: It doesn’t often happen. As long as everything is in place and there are no problems with the company, then it should go through. When it does fail, it’s usually due to internal squabbling or disagreement amongst the senior team, disagreement in the partnership, or from losing clients.
What are the tax issues that come into play with a sale and what do businesses need to do to prepare?
Tony: There is a lot of due diligence that needs to be sorted for a sale. You should be constantly looking at your advisors and ideally upgrading within three years of the transaction. Make sure that you have your red lines spelled out. Look at all the tax problems in the business as well as the tax incentives. If you are looking to top up employees’ shares, then do it as tax efficiently as possible.
What about the tax implications of an earn-out?
Tony: As you would expect, earnings are subject to income tax. Getting the structure right is important if you want to ensure a 10% rate of tax versus 47%. HMRC won’t want to give you 10% unless you can prove that the proceeds arise from the shares, so get things in place to make sure you get the best rate.
You also need to look at the rules you’ve set about who gets an earn-out. If you don’t make clear rules, and someone on your senior team leaves before completion, then things can get messy.
Anna: You cannot underestimate the complexity of the process. If you’re going to do it, get the best possible advice and do it right. You may never get a chance to do it again. A really good broker will show you all the options available and help you get the best deal.
What happens after the sale? Do you recommend staying involved or leaving?
Anna: After I sold my business to Publicis, I stayed on to lead the integrated offering that I’d built because I wasn’t finished yet. I still wanted to develop my career and felt that I could do that in the Publicis Health network – that was one of my key criteria when looking for an acquisition partner.
If you’re not looking to sell, but you suddenly get an appealing offer, is it worth talking to an advisor or bank and accepting further bids?
Anna: It depends on how real that offer is. If it’s a serious offer, then you need to get serious advice.
Tony: There are a lot of opportunists out there. You’re most likely at a point where you have not done much research nor prepared your business at that stage to be in its best form for a sale.
Rupert: If you receive an offer and you’re interested, don’t let yourself get overly flattered. It could be that your business is worth much more. If that interest came from seemingly nowhere, then there may be great potential for a sale. You just don’t know until you do your research and get advice from experts. Best to slow down and look at the big picture before rushing into a sale.
Anna Korving, Chair of Hanover Health – Anna co-founded the Intelligent Health Group (Resolute Communications London and New York, and Real Science Communications), which she sold to the Publicis Health group in 2010. She now advises the directors and senior team at Hanover Health on growth, strategic direction and international expansion.
Rupert Ashe, Founder and CEO at D5 Capital – Rupert is a serial entrepreneur who has started and sold four businesses as well as advising on approx. 80 capital transactions, in his role as investor relations and corporate finance advisor.
Tony Spillet, National Head of Tech & Media at BDO – Tony has worked with fast growing businesses throughout more than 25 years at BDO, assisting many of them with international expansion and through external investments, reorganisation and exits.