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Discussion in 'General Business Forum' started by Ecommerce&MailOrderGuy, Nov 15, 2020.
That's great to hear and whilst you may not be able to meet demand, probably the right approach!
Are there are other members with experience of selling a business on this board? Either been through the process themselves or actively involved this area themselves? It's just so hard to get hold of up-to-date information unless you are 'in the know'.
Clinton I'm assuming your suggestion of 'You'd be very lucky to get 2x' was based on a very small business before I gave you an idea of our substantial revenue?
If we make steps to install a strong management team it would be good to think we could achieve 4-5x pre-tax profit? Especially given the recent reduction in ER and the potential rains in Capital Gains Tax.
The 'nuts' of my original question was asking about the rise of asset values since 2007/8.
I think of 'assets' being solid objects such as houses.......but I suppose this should apply to businesses too??
Is this a good time to sell an ecommerce business?
Firstly congratulations. That's a great achievement. My business is not as far advanced as yours, we've been going 3 and a bit years and will get to just over £6m this year.
I reached out to a couple of founders who have raised capital and exited their businesses, who were kind enough to share some thoughts and advice. This has helped shape what we will do going forward.
We used Amazon / eBay initially but don't now as owning the customer information is important for us as a brand. As we only sell direct, we also control everything which means that hopefully the business ends up being worth more when we do exit. Do you have social media accounts? Followers on there is also a great thing to have due to brand reach etc.
Did you dilute your shareholding at all by raising money? We've managed to avoid it thus far, we went through discussions earlier this year with a VC firm with a view to selling 25%, however their valuation of £12m was not acceptable to us.
We have now written down our plans and have a strategy to get us to our exit point in 3-4 years. We've already spoken to an adviser who specialises in disposals in our sector, who we were introduced to by one of the founders we spoke to. He's offered an invaluable insight into what is required to maximise our exit value.
Wow that's fast growth Incognito so props for that.
I agree about Ebay/Amazon.....good for a bit of revenue, a bit of testing but of limited strategic value.
That £12m valuation seems pretty decent to me - double your revenue, what's not to like?
Don't suppose you could private email me with your advisor details - it's almost impossible to know how to separate the sharks from the good guys. Guess its a process most of us will only go through once if we're lucky so you can hardly learn from personal experience
(as you'll know 'business' is a learning game)
Our issue with the valuation was that we've been growing so fast that by the time it all went through we'd be worth quite a lot more. For context, we almost sold 20% for £1m the year before to a private individual (lucky we didn't!) and next year we plan on hitting £18m.
I sold a German news agency for trade news and market research in 1999 and I was one partner in a German company sale two years ago. I have witnessed and been party to a few other sales here in the UK and one in Italy.
All this talk of 4 x GP is utopian thinking. There is no magic yardstick.
The Italian company was a loss-making basket case and the production facility broke every employment and environmental law you can think of and was a small company. Just closing the damn place down cost the new owners a seven-figure sum! It sold for a great deal of money! It owned a number of valuable patents for frictionless bearings.
More importantly - the company I was working with who bought the place was not the only one who wanted to get their hands on those patents! Those patents were the future and the very LAST thing they needed was for the competition to get their hands on them.
Now look at your company from the potential buyer's PoV -
The first thing to look for in any company is assets. Market share can be an asset. Patents and buildings are assets. Brands that people have actually heard of are assets. (Brands that not one person in 100 has heard of are not assets.) Knowhow is an asset. Staff should be an asset.
The owner is a liability. When she or he goes, they take their drive, determination, ability and knowledge with them.
Just how much of that GP is down to the person who founded the company? Some? All of it?
Once we have taken over and replaced the old owner with a person from HQ, how much profit will survive the change? Some? All? None? How many staff will leave when we insist that they actually work properly and don't spend 20 minutes on the loo with their phones?
What will it cost us to run this company? What will it cost to put a proper bookkeeper in and replace the owner with an experienced manager? How much do we have to invest to fix that leaking roof, the dodgy website, upgrade the software to our in-house systems and replace all the old machines? What will staff retraining cost? £1m? £2m? £5m?
How long has this company been trading at that kind of GP? This year is nuts. It's an aberration. Forget this year! What are the underlying trends and can they be relied upon? Has any turnover and revenue source been manipulated? Asset sales booked as something else?
Anyway, all this talk of GP - when looking at the books, it's the net profit we are interested in! That figure might just give us a clue as to how much we want to pay after we've looked at the assets and all the additional costs. What is the RoI and how does it compare with other opportunities?
And now that we've looked at their books and their operation, what would it cost to set up in competition? But get it right and without the baggage of old and bad habits. Is the cost of setting up less than they are asking? Yes? Then we know what to do!
Above all, there is my question on page one of this thread - why does this person want to sell? If it is such a profitable company, how come they are running away from all that profit? What do they know that we've missed?
Then there is due diligence - you only need a sales manager with a dodgy past and down comes the price! All those little niggles that spell death. Only one supplier? Binding contracts? Technical developments? Changes in tastes? C19 issues? Legal problems on the horizon? Key staff about to leave? Key customers in difficulties? Market volatility?
Above all - the deal has to smell right. The sale has to make sense.
Very good post Byre, thanks.
Fortunately I have no particular motive to sell. Guess its just we all know the pressures of running a small firm and the attention/passion you have to give to make it flourish. It's simply a nice thought to think there might be 'another life' to live before I get too long in the tooth.
Leaving my business owner/capitalist hat very firmly on it was nice to thing the retained profits that the business is now accumulating could be extracted at point of exit. For years we have ploughed profits back into the business (increased stockholding, IT Systems, Management salaries). Only lately are we generating 'excess cash'. I was kind of hoping (perhaps naively) that any sales value including reserves/stock value would be taxed at a reduced rate of 10% under ER (I know there were a few HMRC hoops to jump through but this seemed to be the rough tax scenario). Now this allowance has been removed (well, reduced to £1m per shareholder) selling seems like a much less attractive proposition.
Going back to my original post the main thrust of my query was a 'heads up' on the market.
ie, The swelling of 'asset values' due to QE and what that might mean to the small business market. Perhaps the wider macro economic environment doesn't really come in to play here?
It may be a great time for an IPO, but selling an SME is all down to values and RoI.
SMEs live in the real economy fueled by broad money. Share prices live in the financial (bogus?) economy fueled by base money (i.e. bank reserves and stimulus cheques).
When base money becomes broad money is when inflation starts to accelerate.
Not having a motive to sell does not mean that you should not be steadily restructuring to cover the sort of points I raised above - as the company grows and acquires assets, well, then one day . . .
If you're making the kind of money you claim to be making, you can afford to go pay for professional advice instead of trying to do it on the cheap.
Yes, there's a lot of advice on my website and in my vast volume of posts here, but at some point you need to start paying. I'm done with this thread. Go get paid advice.
I'm not taking clients at the moment as I'm fully booked up, but you could ask your accountant to recommend a good corporate finance firm. Or go hire Aniela, he's the local expert
Does selling make sense ? It might do, but in reality, does it ?
Throw some numbers around and what do you get ?
Sell for £10m, you get a one time hit.
Give up £500k per annum to put in a much stronger management level and you reap £2m plus a year and you have your sale price back in less than 5 years and a theoretical annuity reaching out into the future after that.
You may only get £6m but you could have that back in 3 years. It will take 12 to 18 months to sell anyway so you'd be half way there
I have spent some years putting together a number of smaller businesses, some of which needed owner responsibility but which can now function as units under a management umbrella. I doubt I can realise the full value of this collection of assets for a sum which makes selling worthwhile and thus, as per the example given above, my exit strategy is not actually an exit, but a handover to management, gradually over a few years but I heavily suspect I will get more out of it in 5 years than I would via a one off sale and with those odds, not selling makes sense.
Thanks for the recommendation.
Basically, @Ecommerce&MailOrderGuy he's saying that he doesn't believe the numbers you're mentioning, as if you did, you wouldn't be looking for free advice on forums.
I do agree with him on that side of things to be fair.
If you were doing 12 million a year, with multi-million pound pre-tax profits, you would know lawyers, accountants etc who you would automatically go to for an opinion. You generally wouldn't get a business to that stage without bumping into people who know that side of things.
Long story short though, most businesses from a sellers point of view are not worth all that much.
It's just the way it is, until you're talking higher multiple of millions.
That's the thing Aniela, it's difficult to see who is genuine and who is not.
Dangerous things message boards
This certainly applies when selecting 'middle men' such as Management Consultants, Business Agents and the like. There are many horror stories out there.
I've made a decent fist of developing a business but I've never sold one before.
Quite happy to spend the cash on advice - bit of a cheek suggesting I'm tight - this is a business message board after all! But just thought I'd look to see first if anyone who is genuinely 'in the know' who might be willing to offer advice. I've chatted to BCMS a couple of times amongst others and don't fancy throwing £40k at a project without having a firm grip on how things will probably pan out. (btw - for anyone reading this, if you negotiate they soon drop to £30k worryingly quickly).
For a start I need to find someone who really understands ecommerce - not someone who deals with selling a bit of everything (hotels, industrials, shops etc). This is a dynamic sector and I need someone to assist who understands how it ticks.
If you ask these transfer agents directly they all say 'of course we specialise in ecommerce' but then they would, wouldn't they. You ask them for specifics or examples and they talk up the numbers but hide behind confidentiality.
I simply haven't got time or patience to to waste.
Big believer in getting as much research done as possible before I embark on a project, especially when I'm starting from an inexperienced position.
This is so funny I just had to come back.
I was joking about using Aniela for advice, but it appears you like his advice. You should hire him quickly before he, too, becomes too busy to take you on. Also, his advice is free so it's kinda the right price for you. Good luck.
My typical client owns a business with between £5m and £50m in t/o so I have a lot of experience dealing with owners of businesses like yours and I get all types. With enough experience one gets good at reading between the lines.
You've gone and spoken with numerous brokers but you've not said anything about paying your accountant or a corporate finance firm specifically to investigate strategic options / provide strategic advice. You've not said anything about paying for a valuation. You've not said anything about paying for any other advice like early stage tax planning on exit options.
No sir, you thought you were smart enough to start with finding a few brokers and speaking directly with them
But now you've landed on your feet and you've found an expert; I'm so pleased for you.
The fact that you ended up talking with BCMS of all companies suggests to me you've no idea what you're doing. The fact that you negotiated with them, double glazing style, says a lot about you and you wanting to do it on the cheap. Try that with any of the 50 or so competent UK lower mid-market firms expert in the sale of tech, online, SaaS, ecommerce businesses and they would likely dump you immediately!
Transfer agents?! FFS! Transfer agents are firms who sell micro businesses like hair salons and newsagents? Sure they're as cheap as sh*t and many operate on a no-sale-no-fee basis ...Oh wait, that's why you ended up speaking with them!
You don't "throw" £40K. When you hire a proper firm the retainer you pay is an investment that they match in time and costs. They put in more than 1000 hours in selling a business like yours and provide tons of legal, tax and other advisory services along the way. Your use of words like "throwing" gives a further insight into how you see paying for advice.
Unfortunately for you I'm the only one in the UK who has comprehensive sector information - who's a specialist in which sector - and also how much of experience they've got, what they charge, how good they are at what they do, much else.
I also know many of the so called "website brokers" - from FE to QLB to Empire - and I knew them since before they even started their brokerages (!) when I was running the world's largest forum for buyers and sellers of ecommerce businesses.
I'm the only person who has a list of all the firms who are experts in selling businesses like yours. And I wouldn't be interested in helping you. Perhaps I was being too polite earlier about being too busy, I often make that mistake of being too polite. But the fact is that you just didn't smell right.
Yes, but don't worry, you've now got Aniela on your side
Operated the worlds largest forum in that sector, have the biggest knowledge in that sector and only deal with £5m to £50m companies, yet companies house show a very tiny business; a few thousand pounds at most.
Nice. Something doesn't add up, does it.
Don't take the advice he gives you to heart @Ecommerce&MailOrderGuy - He's just an information compiler. Nothing wrong with that, I guess. Information does have a value.
It's just the equivalent of me charging £500 to an elderly person with no internet experience, for helping them understand Google is the best search engine to use based on x, y and z data. If you didn't know that, it's still technically useful and valuable and that elderly person goes away thinking you're a genius.
I don't often do the Sheriff of UKBF thing but I've had a couple of reports about this thread. I don't want to close it or start deleting posts but @Aniela and @Clinton – please keep it civil.
Ray, perhaps you need to have a word with your mods about taking stricter action against people who pick on other members to make unwarranted, repeated and persistent attacks on them in thread after thread after thread.
You can do without me, I'm sure the forum will manage, but if these attacks continue, I shall simply stop posting. I don't need the aggro. I had a year off before, I can a year or two off again.
I try to be polite to people and make reasonable posts that make sense, but already many months ago I had to put A. on my ignore list and he/she/it is the only one on that list.
A forum that allows trolling soon begins to lose members.
Why don't you simply ignore them?