Selling a company in 2023: Should I sell my business now or later?

I was asked this very question last week: “Should I sell this year or wait?” Having spent some time thinking about it and answering them, I thought I would expand upon and share my thoughts in this blog.

And then just the week before I had been asked what an offer meant in terms of how much the seller would actually receive after tax, and costs. So, I built a bit of a model so that our client could fiddle with the numbers – a phrase that I can use here but cannot when I am wearing my “audit hat”: “Fiddle” and “Cook” being two of the many words best not associated with audit and accounts!

That to one side, I decided that I would make this article into the first of a series of three: the next two being Valuing Your Business and The Tax & Costs of Selling Your Business.

As always, if you don’t want to wait for the last two to be published, please do get in touch with me and I will happily help you think through your options.

So, turning back to the question, “Should I sell this year or wait?” As you might imagine, there is no clear-cut answer; it really depends on the circumstances of You and Your Business.

We met the director shareholders of a potential client earlier in June, who had been through two changes of ownership: one inter-generational within the family and then the second as a management buy-out. Whilst the current shareholders, wish to continue for some time, we had a chat about further succession, for when the current shareholders decide to call it a day.

The conclusion we made is that we should spend some time talking it through over the next few months… something that their current advisors haven’t been able to do, as whilst they are a good established firm of accountants, their focus is very much just on delivering accounts and tax returns.

As I said to them though, succession planning is very much about giving the current owners options, rather than creating an obligation. That is to say, having the business ready to transition to the management team, but not having set the process in stone. A fixed plan can happen easily with tax-driven succession planning. It is important to get the tax position right, but the old cliché is that the tax tail should not wag the dog.

I refer to this company, as whilst they were thinking about succession planning and timing, the same applies to a company sale if that is what they decide to do instead: the business needs the be in the right place so that it does depend upon its owners.

We see this concern from potential buyers quite often. The following week I sat with the owners of a different business and listened to the potential acquirers try to get a feel for how much the business revolved around its owners, Jeremy and Sally (*). In this case it didn’t, but frequently the company and its owner are synonymous.

So, part one of the answer is – Is the business ready to be sold?

This will include whether there is an ongoing management team in place that is independent of its owners. But will also include having an established loyal customer base, and a positive trajectory in profits (In the next article we will explain what we mean about “profit” but spoiler alert we tend to use EBITDA). There is a raft of other things too.

Then, are you ready? And again, this covers a number of things: What will you do instead of work? How long do you want to continue, and if you sell, how long can you support a handover? And perhaps the biggie… can you afford to sell… will the proceeds from the sale of the business, fund your retirement. We will deal with in the next article… and the one after for that matter as it is what you actually receive, initially and after tax & costs that is important…. Including amounts that were agreed to be deferred.

I always think though it is best to give a real example, and in this case, let me tell you about Tamara.(**)

Tamara came to see me as she was thinking of stopping work and selling her business. Her other half, Rupert, wanted them to retire, spend more time with their young grandchildren and just make a little more use of their place in Portugal. Never ask a lady her age, they say – just look at her date of birth at Companies House, which I did and at the time made her 61. Tamara liked to fly and would take Rupert and the family to their second home in Portugal, using their twin engine plane… that’s when she wasn’t riding her polo ponies.

Now, I am no financial advisor, have never bought a plane and don’t own horses. But even a cursory look at the value (of around ￡1m) told me that the maths didn’t work: The mathematical equation being: -

61 Years + good health + 2 children + 2 grandchildren + ponies and livery (4) + homes x2, + 1 plane does not = a comfortable retirement.

We have now looked at two pieces of the three-piece jigsaw: Is the business ready and are you.

That leaves us to think about the third, being the market for buying and selling companies.

Sales people like to say the market ids good, and that the timing is right. Chardonnay(***) tells me that now is the perfect time to revisit our telephones. Charles tells me that it is a go, go, go to appeal business rates. Tristan & Jules don’t see that mortgage rates will affect house prices and it is a seller’s market, for houses.

Turning back to selling companies you hear advisors tell you that there has never been a better time. I am sure you will know the firms that do that – Two in particular who have probably done what they do to you – written to once a month for the last n-years to suggest a chat, in confidence?

Recently, Gerald got in touch to tell me that “High levels of enquiries have resulted in an increased value of all businesses, making it a sellers-market”. Now, really Gerald… all businesses have increased in value. The team at Pinocchio’s, (I am sorry, but it doesn’t really warrant pretence that it is true) can apparently tell you how much your business is worth in just 30 seconds by answering three questions.

Probably the biggest transaction of your life… Maybe its worth giving it a full minute rather than 30 seconds?

And perhaps, a 4th question just to make sure?

I will leave that with you, but suggest we consider this again and talk through in the next blog in this series for good measure.

So, how is the market for selling a business?

There is no doubt that multiples of profit are not what they once were. If I think back to 2017 and 2018, the market has softened. What might have once been 6-7x profit might now be 5.5x profit. Don’t let Gerald convince you otherwise. It also depends on market sector.

I see though two levels of investor.

1.??????At one level: Investors that seek value, by approaching (off market), companies that are not in a position to be sold, or the owners seek a quick sale. Or you might be told that its down the recession (What recession?) Multiples, in such cases might be say 4x profit; and,

2.??????At a different level (Private Equity): Good companies still command premium values, and as private equity have huge available funds to invest, they are still willing to pay higher multiples. The alternative for them is not investing which is not an ideal option with inflation at the level it is, as in real terms their fund is diminishing if they do no.

The market may not be as strong as it has been. But the market is as it is. The priority therefore is in the order that I proposed the three bits of the jigsaw… (1) Is the business ready to be sold; (2) Are you ready; and then (3) If the first two are a yes, then they are all that matter – Now could be the time to sell.

Remember that does not mean necessarily selling to a third party. It could be an MBO, or even an EOT (Employee Ownership Trust) – more about those another time.

I hope that gives you a feel for how you should consider the question. Caveat Venditor – let the seller beware, and inevitably, it will suggest a series a follow up questions, and if that is the case for you, lets meet for a chat.

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(*) Naturally, Jeremy and Sally are not their real names!

(**) No, Tamara wasn’t her real name, and nor were her hobbies the ones I said, but the conversation happened along the lines of what I said – unaffordable lifestyles, post-sale. Tamara is not married to Rupert, but she did once date a Rupert at university and has always wondered how that might have turned out.

(***) You get the idea… all names and identifiable things have been changed.?