Selling my business....

[Redd]

With a permanent move to Spain scheduled for 2024 I am considering selling my company. The other option is hiring an MD and having him or her run this in my absence (this scares me somewhat)

I have had 3/4 enquiries and so far 2 offers for the business.

one guy in particular I would like to consider. He’s young and I could see him running this well and taking it to another level.
The deal though is the clsssic no money upfront. I’ve rejected this and he has improved his offer.
He is proposing to borrow money from the bank (from my business) and pay me on day zero (so technically money upfront but borrowed from bank (from business) then pay me 100% of the year 1 profits whilst he works with me shadowing me then stage payments until the rest is paid off likely year 1-2. I’ve requested 15% shares in the company too which he has reluctantly agreed to.

it’s early days but was looking for some advice on this. When I first heard of it I thought it was a joke but the more I look into this type of deal I can see it’s a fairly common way to buy a business and ultimately I get my money and the buyer gets a very good business.

my concerns.....

surely as director I’m liable for part of this debt he is proposing to take out via my business?

what if he walks away?

will the bank lend this amount of upfront money on this basis (circa 250k first payment)

any advice be much appreciated.

 

[MarkOnline]

Run away, he's not a buyer. I bet he's a relly nice fella though.

 

[Mark T Jones]

Will the bank lend money on this basis? Almost certainly not without security. That security is likely to take the form of a PG from you (since the other party evidently hasn't got a pot to p!ss in)

Sounds very much like one of @Clinton's £1 Charlies. Apparently he has opinions if you can coax one out of him.

 

[DontAsk]

Do you already have a personal guarantee with the bank.

 

[pentel]

Offer him a job to see if he has it in him, pay him well and he should have some of his own capital to invest after the first year.

Better plan, find another buyer who has cash.

 

[The Byre]

Run away, he's not a buyer. I bet he's a relly nice fella though.

THIS!

Fakes and charlatans are always nice people! It's their job!

Your job is to sell a viable business. The buyer's job is to come up with the money. Their money! Not your money! How they do it is their business. Leverage or trouser-money - that's their pigeon. If it is a viable business, he will be able to borrow against the assets of the company and be able to do so without you having to guarantee anything.

When I first heard of it I thought it was a joke but the more I look into this type of deal I can see it’s a fairly common way to buy a business and ultimately I get my money and the buyer gets a very good business.

You might get your money - and then again, you might not! He will pull a fast one at the last minute and link payments to profit - and guess what! No profits all of a sudden!

A downturn in the economy, the price of cheese has gone through the roof, it's Tuesday, the dog died - all kinds of reasons for profits to nose-dive!

The 15% thing is a bit of a red flag too. Either he buys it or he doesn't buy it!

The other option is hiring an MD and having him or her run this in my absence (this scares me somewhat)

If you are still a hands-on manager that is responsible for the day-to-day operation of the business, then you are selling a better job. If you want to get the most money for your business, then it must be the sort of operation that requires just a weekly or monthly look at the books.

That was the most important thing I had to learn when I sold my business. "Whoever buys this," said my advisor. "they are not going to come and sit in your office and man telephones! They will be an investor looking for a return. They will not be looking for a job!"

 

[Financial-Modeller]

Does hiring an MD to handover in three years scare you more than losing the entire business?

 

[Gettingthereslowly]

Does retaining a 15% shareholding also not hinder the use of Entrepreneurs Relief on the business sale?

 

[SillyBill]

With a permanent move to Spain scheduled for 2024 I am considering selling my company. The other option is hiring an MD and having him or her run this in my absence (this scares me somewhat)

I have had 3/4 enquiries and so far 2 offers for the business.

one guy in particular I would like to consider. He’s young and I could see him running this well and taking it to another level.
The deal though is the clsssic no money upfront. I’ve rejected this and he has improved his offer.
He is proposing to borrow money from the bank (from my business) and pay me on day zero (so technically money upfront but borrowed from bank (from business) then pay me 100% of the year 1 profits whilst he works with me shadowing me then stage payments until the rest is paid off likely year 1-2. I’ve requested 15% shares in the company too which he has reluctantly agreed to.

it’s early days but was looking for some advice on this. When I first heard of it I thought it was a joke but the more I look into this type of deal I can see it’s a fairly common way to buy a business and ultimately I get my money and the buyer gets a very good business.

my concerns.....

surely as director I’m liable for part of this debt he is proposing to take out via my business?

what if he walks away?

will the bank lend this amount of upfront money on this basis (circa 250k first payment)

any advice be much appreciated.

I will counter here with my own personal experience. My first business I bought into was via a MBO, I had about £50k to my name which I had to sell my house to get at the time, no bank was interested and the purchase price was £2.2M + interest. It was done through loan notes issued from the seller in the end. He walked away, retired and in effect I basically worked for him for 5 years by diverting the vast majority of the profit out the business to pay the loan notes until the acquisition cost was settled. He got about 4.5 times EBITDA which was a good deal for him (not too dissimilar to what he would have got trade sale if he could have found one), a good deal for me considering my lack of capital. Naturally though I was very familiar with the business and there was a level of trust between the parties. It can work though. If you are comfortable to defer the acquisition price over a period of time to get the value you want, the business has got good legs and the person taking it over is competent to run it/build on it then it can work. In terms of your man being young, it is no barrier in itself, I was in my late 20s, 27 or 28 I think. You have a lot to prove at that age...

 

[MarkOnline]

I will counter here with my own personal experience. My first business I bought into was via a MBO, I had about £50k to my name which I had to sell my house to get at the time, no bank was interested and the purchase price was £2.2M + interest. It was done through loan notes issued from the seller in the end. He walked away, retired and in effect I basically worked for him for 5 years by diverting the vast majority of the profit out the business to pay the loan notes until the acquisition cost was settled. He got about 4.5 times EBITDA which was a good deal for him (not too dissimilar to what he would have got trade sale if he could have found one), a good deal for me considering my lack of capital. Naturally though I was very familiar with the business and there was a level of trust between the parties. It can work though. If you are comfortable to defer the acquisition price over a period of time to get the value you want, the business has got good legs and the person taking it over is competent to run it/build on it then it can work. In terms of your man being young, it is no barrier in itself, I was in my late 20s, 27 or 28 I think. You have a lot to prove at that age...

There seems to be a fundamental difference between your situation and that of the OP. this "buyer" has no money in the deal, you had everything you owned in it, thats one hell of a commitment.

You paid the loan note through profit, not by leveraging the assets of the business you were buying. Thats like me selling the car I own outright and the buyer putting the car on finance so if the deal goes pearshaped I have to talk to the finance company, and pay out money to get the title in my car back.

More importantly, you were already there in the business, commiting your time and energy to learn how the business made money. The "buyer" in this instance is IMO a chancer, he may be an honourable fella searching for his chance but I would bet the odds arent stacked in the OP's favour.

 

[Socio South West]

I don't get sentences like "He’s young and I could see him running this well and taking it to another level." and retention of interest in a business you want to sell..... You want OUT! It doesnt matter what anyone does with the company the day after you hand over. Its not yours any more.

If it still matters to you what happens to the company, then you aren't ready to sell.

Messing about with protracted Buy In deals are messes made for the legal industry as a new owner's vision is almost never the same as the vendor and it is friction from day 1.

Put a price tag on it.... Sell the company, get your reward for enterprise into the bank, get shot of the stress and responsibility and sit in the sun sipping sangria when the time comes.

 

[Aniela]

With a permanent move to Spain scheduled for 2024 I am considering selling my company. The other option is hiring an MD and having him or her run this in my absence (this scares me somewhat)

I have had 3/4 enquiries and so far 2 offers for the business.

one guy in particular I would like to consider. He’s young and I could see him running this well and taking it to another level.
The deal though is the clsssic no money upfront. I’ve rejected this and he has improved his offer.
He is proposing to borrow money from the bank (from my business) and pay me on day zero (so technically money upfront but borrowed from bank (from business) then pay me 100% of the year 1 profits whilst he works with me shadowing me then stage payments until the rest is paid off likely year 1-2. I’ve requested 15% shares in the company too which he has reluctantly agreed to.

it’s early days but was looking for some advice on this. When I first heard of it I thought it was a joke but the more I look into this type of deal I can see it’s a fairly common way to buy a business and ultimately I get my money and the buyer gets a very good business.

my concerns.....

surely as director I’m liable for part of this debt he is proposing to take out via my business?

what if he walks away?

will the bank lend this amount of upfront money on this basis (circa 250k first payment)

any advice be much appreciated.

I often buy businesses in a similar fashion. No money upfront but the business funds the purchase directly.

Nothing particularly unusual about this, apart from him willing to agree to you keeping 15% of the shares.

To me, that sounds like someone who literally has no money and is willing to keep you happy and give you 15% of the shares, because he has nothing to lose but everything to gain from just giving you what you want. I mean, 85% of a 'no-money down' business, is better than 0% of a business.

However, that likely means he's never actually bought a business before, so comes with all the pitfalls that comes with. Does he even know how to run a business?

Just take into consideration that you owning 15% of the business, pretty much means nothing. If he just takes all the profit out in wages or similar, you get nothing. Which he might do, just so you think it's pointless being a shareholder and sell your part of the business for pennies.

It's tax inefficient for him, but again, if he takes control of a business with none of his money down, tax efficiencies don't mean much to him until he's taken full control of the business.

If someone buying a business is willing to let you keep 15% just to get the deal done, on a 'no-money down' deal, it would be a red flag for me.

 

[MarkOnline]

And if he owns 51% or more you now work for him.

 

[Redd]

Thanks Guys. The initial loan would be 250k with me working in the business for a year and taking 100% of the profits up to 300k and 50% of any additionals all in year 1 therefore 550k minimum is almost guaranteed.
After year 1 I leave the business and it’s over to him to “hopefully” get me the rest.
The 15% hasn’t been fully explored I just wanted to keep a percentage of a company I’m sure will grow a lot further.
I do want out of the business (I have another business which I would like to grow) and it is fairly self sufficient hence why I’m struggling to ascertain what a MD or GM would actually do.

I have had another cash offer below value for cash and have a broker on to it to with no upfront payment. There’s also no rush to sell and with 2021/2 poised to be our best ever year again I’m aware that it’s the wrong time to sell anyway but wanted to get the ball rolling and if they right price comes in I’ll do it and they will get a brilliant business on the rise still.

 

[Mark T Jones]

Wow you really are selling this deal to yourself!

They are 'guaranteeing' you £500k by way of leveraging your assets and allowing you to take your profits? You do realise that you can do those things yourself and still have a business at the end of it?

That raises the question of tax efficiency - there may (or may not) be merit in doing that and selling with debt for a lower price

There is a reason that professional investors bang on about 'flesh in the game' and the reason isn't cash itself - they have plenty of that - it's about commitment and sharing the pain. This guy is doing neither

On a separate note, hopefully you have read and fully understood the terms and long term implications of your broker agreement?

 

[MarkOnline]

Some mat say talk to your accuntant or solicitor, I would suggest you talk to a psychatrist in this instance.

 

[pentel]

I have had another cash offer below value for cash

Either this, or take on a manager

 

[Financial-Modeller]

Not enough info available to do the sums, but if a bank will lend GBP250k against assets, and the company will be servicing that debt, do the terms of the offer mean that the new owner could seek to reduce the value of the company for valuation purposes when paying you out in subsequent years?

Does the value of your net proceeds from the offer still look attractive compared to liquidating at NAV today @Redd ?

 

[Ned Barker]

This debt is likely to be secured but you need to find out what is securing the debt on the business, for example, is its assets within the business? Either way, it is likely to have a PG. Witch means the business's debt will fall on someone's lap (Directors's lap) if the debt defaults.

On the other hand, if he has signed the personal guarantee on the debt of the business he would be 100% liable for the debt of the business. I would suggest looking deeper into what type of debt he is using.

 

[Paul Norman]

Timing! @Clinton went onto radio silence just yesterday.

He would have a unique, but precise, way of telling you not to press on with this deal.

That would be my advice. As described, it is too complicated, and leaves you with too much risk, and leaves you as the new blokes running boy. Of course, we haven't seen the detail of the proposed deal. And there would need to be a LOT of detail.

To advise you properly, I would need more information. I have no idea what your business might potentially be worth to a prospective buyer, or what the risk is if you take on an MD and press on. For that reason, I withhold specific advice beyond saying that the deal you are describing sounds too poorly defined at the moment.

 

[pentel]

He would have a unique, but precise, way of telling you not to press on with this deal.

Unique but precise, couldn't agree more!

 

[The Byre]

On a separate note, hopefully you have read and fully understood the terms and long term implications of your broker agreement?

My wild guess is that the OP signed an agreement that stipulates that he must pay the broker a fee, let's say 15%, in the event of an ownership change. Now, all that the broker has to do is keep tabs on Companies House for every Charlie he has persuaded to sign such a deal.

In five years' time, our OP sells his company for £1m and the broker sends in an invoice for £150,000.

 

[Chris Ashdown]

My wild guess is that the OP signed an agreement that stipulates that he must pay the broker a fee, let's say 15%, in the event of an ownership change. Now, all that the broker has to do is keep tabs on Companies House for every Charlie he has persuaded to sign such a deal.

In five years' time, our OP sells his company for £1m and the broker sends in an invoice for £150,000.

Sounds about right based upon old posts on this forum open ended contract and doing nothing real to help sell the company

 

[Paul Kelly ICHYB]

It does make me chuckle - sell a business to someone using my own businesses debt!

If it were me, I would bring the person on as an employee with the offer of shares and/or MBO in 3 years. You can then see if the person is capable of running the business whilst starting to wind down

 

[Talay]

I've bought a number of businesses in the circa £0.5m range where I've done the deal with owner financing, though in each case I've put in between 25% and 50% of the cash upfront, plus all other costs on my side.

Why this way ? because it just makes sense.

If a £500k business is making £150k a year but needs some owner input then it doesn't necessarily have a high valuation. It may or may not be able to stand on its own two feet but unlikely really.

So you put down £200k, make £150k in year one and pay back £75k. Rinse and repeat for 4 years and you are clear of the debt, have made £300k and now own the business.

When looking to sell, unless it can really work without the owner, has a strong management tier and some young blood, then possible to either do the above in reverse or better to put in someone who costs (figures simply given for easy maths) £50/£75k a year and you get the rest.

Fast forward down 5 years and you still own it and have had out £375k or so versus the potential £500k sale price.

Adapt to suit but both sides work.

 

[PugwashEQ]

Hi Redd,

If you're having a number of approaches, then that should give you the ability to get terms that actually suit. There are quite a few pitfalls to avoid here- not least of which you losing your biggest asset for very little, or no, money whilst still retaining liabilities post-acquisition.

If it would help, i'd be very happy to give you some pointers, we would be far too expensive for you to see any benefit from using us properly, but i'd be happy to give you some pro bono advice, if only to see you not take a large, inadvertent, risk. Genuine offer, not strings or obligation- I've helped out a couple of other forum posters on the same basis.

Either way, hope it works out well for you!

 

[japancool]

Hi I have messaged you please check inbox.

Thanks

The fashion and healthcare business not going well then?

 

[Redd]

Thanks for the info guys, the offer is for £1.2 million over the course of 2 years (I will be fully involved for the first year by which time I would have extracted 600k) . I've had another offer cash which I am considering for the similar amount so it seems I won't have to to go down the route after all. I have researched the deal thoroughly though and it is a very viable way to buy a business.

 

[Mark T Jones]

Hi I have messaged you please check inbox.

Thanks

Why no post on here, so we can share the benefit?

 

[The Byre]

Healthy dogs wearing tutus?

 

[PugwashEQ]

Thanks for the info guys, the offer is for £1.2 million over the course of 2 years (I will be fully involved for the first year by which time I would have extracted 600k) . I've had another offer cash which I am considering for the similar amount so it seems I won't have to to go down the route after all. I have researched the deal thoroughly though and it is a very viable way to buy a business.

Congrats Redd, sounds like you have some good options.

Whilst this route is a VERY viable route to buy a business, the question to ask yourself is whether its a very viable route to SELL a business! Certainly the nuances on the deferred and contingent pieces are critical to the risk inherent in those elements.....

Try and keep competition alive as late as possible, don't grant very long exclusivity, cash in your pocket is significantly more valuable than an earn-out!

 

[MarkOnline]

Thanks for the info guys, the offer is for £1.2 million over the course of 2 years (I will be fully involved for the first year by which time I would have extracted 600k) . I've had another offer cash which I am considering for the similar amount so it seems I won't have to to go down the route after all. I have researched the deal thoroughly though and it is a very viable way to buy a business.

Seller finance is quite common, but with your published numbers quite odd in the way you find acceptable for them to do this, the buyer would usually use your credit for leverage but would have not inconsiderable assets of their own (even if they dont want to stump up and put it straight into yours) to secure your kindness.

Therefor I find this thread quite strange. You have a business generating substantial profits and I presume you have gained not inconsiderable wealth getting to the point your are at now . You ask here for advice on whether you should sell to somone with no money to speak of on a promise, using your hard earned assets to do so.

IMO Its a wind up, it doesnt make any sense, someone with the where with all to build a business with the numbers you have published, woudnt sell it on the terms you seem to be happy with. You dont want it managed (did you build it all by yourself with no management at all?) You would have a "go to" law firm, afterall you must have used the legal profession to protect what you have built so far, same with an accountancy firm.

If Im wrong, fair enough, but you did post this on an open forum and despite the advice given totally ignored it to tell us its worth £1.2 million and the deals virtually done. Its most probably months away from completion and the "straw man" buyer has many more strokes to pull before it gets anywhere near completion.

Its a great shame that Clinton isnt here, Im virtually certain that his conclusion would be similar. I have only the knowledge gained over studying the subjet for a couple of weeks (although I do obsess over things I want to learn and have picked up a fair ammount in that time). There must be others who have doubts similar to mine.

 

[The Byre]

I find this thread quite strange. You have a business generating substantial profits and I presume you have gained not inconsiderable wealth getting to the point your are at now . You ask here for advice on whether you should sell to somone with no money to speak of on a promise, using your hard earned assets to do so.

It would seem that this is a very typical type of deal in some societies and with some types of SMEs. I have experienced one such deal and it ended in tears for both parties. The seller was a software/hardware developer and he created a recording package that really needed some serious investment to go up against the industry giants Adobe, Apple and Avid. He was a dozen or so guys in a lock-up and Avid (the smallest of the Big Boys) was over 3,000 employees worldwide.

His idea was to sell his concern with him as MD to some major company that would shoot an eight-figure sum into R&D and make it a viable alternative to Avid's ProTools. Foolishly, he contacted a UK broker - so no serious VC came riding over the hill as the Knight in Shining Armour. What he wanted was Harman Industries, owners of Soundcraft, Lexicon, JBL and about 20 other major audio brands. What he got was a barman from Basingstoke!

The barman from Basingstoke borrowed money against his house to make the deposit and used profits from the company to pay the rest. Very long story short - the barman lost his house. Sales dwindled to zero. The company was known to Peter Gabriel (of Genisis fame) who had got together with other VCs to buy mixing desk maker SSL. SSL needed some serious digital audio know-how and they bought the company and it became part of SSL.

The owner lost his company. The barman lost his house. Gabriel and friends sold SSL to some other VCs who also bought other audio companies in the UK inc. A&H. The company was now a memory - and so was the money!

 

[John Hemming]

One area of corporate finance I have seen work reasonably well is where the buyer buys a company on an EBITDA of about 10% of the purchase price. The buyer can then borrow the money to pay for owning the company and pay off the loan with profits.

All sorts of other deals are possible, but that is what I would expect for an established profit making business.

 

[Starboy]

Why no post on here, so we can share the benefit?

Because he may not want to share the details of the business on a public forum for many reasons from confidentiality to time wasters messaging.

 

[DavidR123]

hi guys
looking for some advice please.
I am the sole director of a company which I used to purchase the shares of another limited company, so in effect one company (the holding company) owns the other company (subsidiary if you like).
I want to sell the Subsidiary company now but I believe if i sell it under the current structure then the holding company would pay corporation tax on the gain, then if i want to take the money from the sale out the holding company I need to then pay income tax.
Where as if i owned the subsidiary personally i would qualify for what was called Entrepreneurs relief at 10%!
any ideas if i can transfer ownership of the subsidiary to me?

 

[PugwashEQ]

Hi David,

Just sell the holding company!

 

[Clinton]

I won't comment on the OP itself, it was a long while ago. Hopefully @Redd has now sold his business for £1, bought a lottery ticket, won the Euromillions and retired on a 150 ft yacht in the South Pacific.

I have only the knowledge gained over studying the subjet for a couple of weeks (although I do obsess over things I want to learn and have picked up a fair ammount in that time).

You have learnt well.

I want to sell the Subsidiary company now but I believe if i sell it under the current structure then the holding company would pay corporation tax on the gain...

Google "Substantial Shareholding Exception". It's the corporate equivalent of the entrepreneur's ER, but don't assume you'll get SSE ...as there are some hurdles you need to pass.

This is why you should go to a professional for matters like buying/selling a company and not ask in a forum.

 

[Alan]

Ah but if you know nothing, you first need to ask someone to even know you need a professional.

At least some of us ( here ) have been benefiting from your wisdom for a few years, but not everyone is so lucky. Now if my business ever became something more than a job and I wanted to sell it then I know who I'd reach out to.

 

[Redd]

I won't comment on the OP itself, it was a long while ago. Hopefully @Redd has now sold his business for £1, bought a lottery ticket, won the Euromillions and retired on a 150 ft yacht in the South Pacific.


You have learnt well.


Google "Substantial Shareholding Exception". It's the corporate equivalent of the entrepreneur's ER, but don't assume you'll get SSE ...as there are some hurdles you need to pass.

This is why you should go to a professional for matters like buying/selling a company and not ask in a forum.

Funny you should say this! I sold the business for £1million in the end! (Albeit only 650k upfront but between posting and selling I probably earned around the 400k mark!) and I kept 10% of shareholdings!

no yacht yet but I am posting this from my Place in Estepona. Spain and “no sh1t” I viewed a boat last month! A Montorey ss225 though and not a super yacht. That’s next when I build and franchise my latest project
I’m deadly serious btw