Are you selling your business or just your client list?

When you contact a broker its most often because you want to sell your business. So that is what you’re selling. However, there are nuances within a business sale that are important to define. Here, we run through one particular client sale from the security sector.

Firstly, some background

First introduced to client by their accountant in March
We used a Value Builder Survey to quickly gain knowledge on the business and it’s owners
They had been approached by a purchaser already and were waiting for details of an offer to arrive
Before this happened, we discussed an open market valuation which provided a benchmark for when that offer came in
The offer received was financially acceptable, but the payment terms attached to it were not and it was declined
By the end of May we had taken the business sale to open market
100+ enquiries came in
4 credible offers were worked through
The sale completed in May of the following year
Deal structure 70% paid at completion.
30% linked to a 2 year earn out and targeted against turnover

The Security Business

This particular business installed and maintained both home and business CCTV and alarm systems amongst other products. The work was regular, coming through recommendation and from a local reputation built over many years. The core to the value of the business was the post installation maintenance contracts.

Involved owners equals deferred payments

This business was still run by a couple who were heavily involved in the day to day running of the business. That meant that any new owner would need to also be hands on to take over those roles, or have a ready made team in place to step in. To be clear, there wasn’t a 2nd tier management structure that could fill this gap.

We talk about the risks of businesses that are too reliant on business owners frequently. The very process of extracting those owners out of the business and bringing in new people can be unsettling. Anytime you need to unsettle customer relationships, buyers will be nervous.

Because of this, experience tells us that buyers will more than likely want to offer deferred payment terms to mitigate the risk.

Profitability and financial records are key

Despite being heavily reliant on the owners, this was a highly profitable business. The quality of the financial record keeping was also faultless. This meant it was easy to extract a list of client contracts by type and by income.

In analysing the contracts, it became clear that the average length of a client relationship with the business was more than 10 years. That and the quality and variety of the commercial clients also made the business of interest to the trade.

Getting focus on the right aspects

We knew the owners were too involved in the business to secure a premium sale price at completion. That there would be deferred terms on offer. That’s a negative. So our focus had to be on reinforcing the positive position of the business.

ongoing maintenance contracts
secure contracted client base
average customer relationship of 10+ years

We were not so much selling a business as we were selling a block of contracts. We just needed to find the perfect buyer who wanted to expand their own existing business by purchasing just such a block of contracts, which is exactly what we did.

Correct mindset to identify exactly what selling your business means for you

All credit goes to our clients who understood exactly why we needed to focus the conversations with buyers on the positives. The negative issues couldn’t be ignored, they are a reality, but they weren’t dwelt on obsessively. If either we as brokers, or our clients had been hung up on finding a deal without deferred payment terms, it may still have been on the market as we speak.

Open-mindedness, realistic assessments based upon an appreciation of how buyers look at acquisitions, helped us guide our client to a successful exit.