Selling a business is not about smoke and mirrors!

June 2019, David Screaigh

Selling a business is something that is different to any other form of selling and is something that most people don’t realise is one of the toughest things you can do.  It is not driven solely by price, because even if a business is “cheap”, it does not mean anybody will buy it for that sole reason.  This is because a business is in itself a complex “living organism” with its own life, and there are many aspects which you can’t simply decide to cease or stop without significant financial and emotional effect – staff, premises lease, clients and suppliers (to name a few) all make up a business and these things are all interrelated and complicated and cannot simply be “cancelled”. We often hear “I’ll just sell my business cheap”, we use the example of a car, if someone has a car which is worth about $50k but they need to dispose of it quickly, if they reduce the price to $25k someone is very likely to buy it - as it is a bargain! Business sales are not like this - because of the many aspects involved! It is more than just price!

As professional Business Brokers we always explain the process of selling a business and explain the journey the Seller is about to embark on and the steps and potential issues involved once they decide to sell their business. Many sellers who do not consult with a professional Business Broker “don’t know what they don’t know”, so blindly proceed down a route which often ends in frustration. This is because we are really selling a solution to a problem that they don’t yet realise exists, however once they realise the problem exists – it is often too late to do anything about it because the best buyers have already been lost through mismanagement.

The very reason I became involved in business broking some 15 years ago was witnessing first-hand some of the risks and problems that mismanagement of the sale process of a business had caused, and the desire to do something about it.  In a “previous life” I ran a large private business and also mentored business owners to help make their businesses easier to operate, more profitable and sustainable – which in turn made the business potentially more valuable and easier to sell.  Some of these business owners decided to eventually sell and I witnessed first-hand the stress and issues they encountered during this process.  Some tried to use advisors who were very good at their particular area of qualification but are not qualified and experienced Business Brokers to sell the business, whereas others tried to sell it themselves. In most cases, it usually did not end well.

With my background in operating businesses, mentoring business owners and as a Chartered Accountant, I started to research why this was happening. What were the underlying trends? What were the existing laws? What was the common process and why were they not working efficiently? What were Business Brokers and others doing to fix this problem?  My research helped to identify the gap in the marketplace – particularly so for businesses with a value of between $1m and $10m. They are often too large for a typical Business Broker (many who do not have any professional qualification), yet too small for merchant bank/corporate advisory type firms (who often deal with very large transactions). What was particularly important was closely managing expectations of the Seller including the time frame, price and emotional aspects, stepping out the process of selling a business, explaining each step and why it is done that way, and keeping them informed during the process. It was also important for them to know we are in this journey together for every step of the way - communication is key! To this is added the realisation that what we are seeking is exactly the right buyer – not just a buyer.  Either a business will suit a buyer’s circumstance/strategy or it will not, so there is no convincing involved other that explaining the business properly in the first place and ensuring potential buyers understand the opportunity. Yes, the potential buyer can be nudged along to better see how the business might fit within their criteria and what is possible (the mentoring, operating businesses, together with being a Chartered Accountant has helped us there). To this is added being able to deal with accountants and solicitors – as we are qualified and already understand the issues which are about to arise so can work with them to have the answers covered.

At Zircom we have a 12 step process and we have learned through trial and success (and error!), there are no shortcuts to a successful sale.  We have effectively applied our professional standards to selling a business.  Selling a business is not about smoke and mirrors – it is about explanation and presentation and then working with the seller and buyer to see what is possible.

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