Australian swimmer Melissa Gorman recently finished 11th in the 10 kilometre open water marathon at the London Olympics. She still winces with pain when she recalls the first time she competed in a marathon swim more than six years ago in the Pan Pacific Championships. Speaking to The Age in August, she said: ‘‘it was horrible, just horrible. I was going okay for the first seven or eight kilometres but then … well, it was like a piano dropped on top of me. I couldn’t feel anything. I was pretty much not going anywhere. I didn’t have the energy. The arms, the legs, were dead. I really didn’t know what I’d let myself in for.”
The analogy is reasonably helpful for first-time business sellers (or buyers for that matter). Many of my clients are first-time sellers and roughly half of those are ‘one-off sellers’, meaning that they have built their business from scratch and, after 15-30 years decide to exit via sale. Unlike an elite athlete, there is very little training that you can do to prepare yourself for the sale process. It can be time-consuming, stressful, costly and (almost always) emotional.
Drawing again from Melissa Gorman: ‘‘To be honest, there’s no 10 kilometre race that won’t hurt. When you’ve got experience you can switch off the pain, or at least the bad pain. You can turn it into, like … good pain.’’
So if you don’t have experience, how is it possible to deal with the sale process in a methodical, calm, fair and “painless” way? Below are some tips borne out of my experience guiding clients through what can seem like an endurance event:
Get ‘sale-ready’ before going to market: Some simple housekeeping can make an enormous difference to the efficiency of the sale process. Kind of like de-cluttering a home before an open for inspection, you should present your business in a clear and comprehensive manner. For example, consider if your lease is up-to-date and that you have written contracts with key employees (including restraint terms). Are you FoFA ready? Deal with any niggling client claims or potential liabilities and be ready to respond to a buyer question on practice deficiencies.
Get tax advice early: Whether you sell the assets or the shares in the underlying company can have a substantial impact on your tax outcome. Talk to your accountant about your planned exit and they will guide you on the CGT, GST and stamp duty issues that should be considered when putting your sale proposal together.
Get the right cultural fit: You may think that your buyer will choose you. Yes, you must have an attractive sale offering to generate interest but you also need to screen potential candidates for cultural alignment before entering into negotiations. A good broker or agent will do this for you. If you choose to deal with the bidder with the ‘highest offer’ only, you run the risk that the deal will fall apart once you get into the nitty-gritty of discussing client management expectations, transition obligations, earn-outs and restraints and so on.
Choose your battles: Once due diligence commences, you can expect to have your business stripped back and picked apart. If you anticipate this, you will be better prepared to negotiate ‘around the edges’ and stick to your guns on the essential terms. For example, is it really worth fighting over the wording of an indemnity regarding potential fallout from a failed agribusiness product when the dollar value of those investments is such that you could simply carve out the tainted FUM/clients from the valuation multiple? Often the time/cost of negotiating contentious items exceeds the commercial risk/value of the disputed item. Be prepared to move-on and let go for the sake of the ‘big picture’.
Manage your costs: Sometimes it’s difficult to predict how parties will respond to negotiations. Good advisers will help identify and quantify potential risks/issues and will take a commercial approach to the negotiation. For the sale process to be a success, your advisers must have a clear understanding of your objectives and expectations and must manage cost and time effectively. Obtain a written fee estimate from your adviser and where stages or tasks are set at a fixed fee; be clear what the assumptions and exclusions are.
Seek quality advice: Just as your clients look to you for expertise, you should only select advisers who have a thorough understanding of your industry and are experienced working seamlessly with the other transaction participants. Commonly, your service ‘team’ will include a business broker, an accountant, a lawyer and a financier. A good broker or lawyer will assume the role of project manager and take responsibility for managing timelines and process, while you are free to concentrate on running your business.
Stay focussed on the business: If you’re selling, it’s the business (or assets) that are being sold. If your relationship with your clients or your staff deteriorates, then the value of your assets will diminish. Set clear rules on purchaser due diligence and stick to them. Having an offer on the table does not entitle the buyer to an investigative free-for-all. Set strict times for access and limit the number of staff that they can talk to (if any at all). For example, it would be unusual to grant access to clients or to view a client list until the core terms of the sale contract have been agreed to and executed.
Have fun: As Melissa says, try to “turn the bad pain … into good pain”. Negotiations can be emotional and stressful, but if you engage quality advisers and work cooperatively with them, you will have a much greater chance of ensuring the predictability and pace of the transaction.
