Should I sell my profitable company?

[Johndrew]

I’m getting to the age where I should be thinking of retirement so I am considering my options. I own a small company in the Northwest of England which manufactures it’s own unique product. This is a type of control valve used by many companies as part of their production/testing procedures.

With 20 years of sales there are several thousand of these products in use worldwide and they have a very good reputation for reliability and performance so we get many repeat orders. There is also a good spares and servicing market where they have no alternative but to come to us, which people are happy to do. With more effort the sales could be increased considerably, there are very few companies making this product and I believe we are the only UK manufacturer.

The product has a good profit margin and based on the last three years profits alone an online website came up with a value of £2 million but I believe with it’s own product it’s worth much more.

My options are to employ someone to do some or all of my work which means I would continue to receive a good income, but not be fully retired, or to sell it outright.

What are people’s suggestions and is there a reliable company who would sell it for me?

 

[Gecko001]

Well done for building up a profitable manufacturing company.

This might seem like asking the bl**ding obvious question, but I will ask it anyway. Have you asked your own accountant to advise you on these matters? They know your business and have surely got experience of situations like this.

 

[Johndrew]

Well done for building up a profitable manufacturing company.

This might seem like asking the bl**ding obvious question, but I will ask it anyway. Have you asked your own accountant to advise you on these matters? They know your business and have surely got experience of situations like this.

I haven't but I don't think she will have experience, and a family member works for me and I don't want this to be known yet. It's something to consider though.

 

[fisicx]

What about a management buyout?

Your existing staff may be interested in buying the business from you with gradual handover of shares from you to them.

There are plenty of business brokers that can help with the process. It could take many months of negotiation. A mate took two years to sell his business for a fair price (which was less than the initial valuation).

 

[Mark T Jones]

There are multiple options here, one being an EOT - I'm not an expert, but do know one.

Quietly approach competitors/suppliers/customers to sound out potential interest.

Employ someone to earn in share purchase

I'd pay absolutely no attention to online valuations - nor to the valuations than MOST brokers will give - sadly there are a hell of a lot of sharks out there - @KeithGreen may be of use.

When using brokers, a slightly reliable test of integrity is to take note of how they manage and challenge your expectations, rather than the big numbers & promises.

 

[Paul Kelly ICHYB]

What do you actually want to do?

The way you want to live in the next few years should have a big input into how you want to move forward.

BTW, unless you have a lot of personal activities to take up your time, remember that going from a busy business owner to house husband overnight can have a big mental and physical on you.

 

[pentel]

Is your business dependant on you? Could you leave the company an it continue running without your input for a year?

If it dependant on you to run day to day then to get the best price you need to work towards loosing that dependency, at which point you may be in a place not where the income from ownership is more attractive than selling.

 

[JEREMY HAWKE]

Are you really ready to retire I known quite a few business owners who regret retiring. Sometimes it's the hussle and bustle that keeps us alive and young

 

[serendipitybusiness]

As you mentioned that you still work in the business, you may struggle to sell it because of this.

Ideally, you should put processes, systems and staff in place to replace yourself before attempting to sell the business anyway. Start with that, and then you can decide whether or not you want to sell.

As others have said, online valuation websites are unlikely to provide an accurate assessment, and you need to be cautious with some brokers too. They can say anything to get you under contract, while your business remains unsellable for years.

You may want to study mergers and acquisitions to better understand deal structures and potential pitfalls whilst you’re in the process of replacing yourself. It will give you a good idea of what your potential buyers will be looking for, how to find them but also where deal terms can be troublesome.

The good news is, buyers are keen on UK manufacturing right now so if your business is big enough, with the right characteristics, you set a workable price and have everything in place for handover you have a good chance of finding a buyer.

Best of luck

 

[SillyBill]

£2m for a business that is heavily linked to a founder/owner would be a tall price. I would say that businesses that fetch more get interest and approaches over the years which itself can inform how attractive your business is. Your competitors or other businesses looking to diversify would've have noticed you. I know a few successful businesses and a lot get interest, even if it comes to nothing, quite a bit. Our biggest customer is a multi-national and has offered to buy us for instance, while we never got to the price because the answer was a flat and immediate no I suspect it'd not have been chump change - tells me we have something they want. On the flipside, one of our two competitors in the U.K. also knows I'd buy them if they came up for sale...as I rang them and told them to call me when they're ready. Their answer was also not now but grateful for the approach and would do so, so they know they have a willing buyer always.

 

[Johndrew]

Thanks for all the replies. plenty for me to think about there.

 

[Lisa Thomas]

I can recommend a valuer if that would help your decision making process, plus someone ho can help you prepare the business for sale. I can also then advise on a solvent Liquidation as a potential tax saving exit route.

 

[Banksbroo]

I'm at the same stage as OP. Ready to exit, but not sure how to get the ball rolling. What my accountant did say was a business sale can take a very long time. Even after price and principles are in agreement, it can still take a minimum of a year to get everything tidied up, so worth factoring that into your retirement plans.

 

[fisicx]

The key part is making the business less dependant on you. Handover your duties and tasks to your managers and staff. This will make the business far more attractive to a potential buyer.

 

[Paulzx]

Personally, if the business is that profitable and you have no stress running it, I would keep going as long as you can, even if it's a reduced role with an employed manager. You can still keep an eye on it without having to be involved day to day.

If you sell it, you probably won't get what what you think it's worth. Plus if a family member is involved, would it not be better to try and keep ownership within the family?

 

[Byzantium]

My businesses are too large to sell to most purchasers and perhaps too small or diverse to appeal to one larger operator but let's look at the options and multiples.

If you could only achieve a multiple of 3x then keeping it for 3 years would see you recover more than the purchase price, but at the cost of your time of course.

If you could bring someone in more management and perhaps give up 25% of profits, then you'd still get 75% of X and in 4 years, you'd recover the 3X selling price.

If you could sell 49% then you'd get 0.5X and perhaps take 2 years to get the other 0.5X.

My guess is I'm either going to have to break it up or bring in more management. I'm undecided right now.

 

[Rydale]

Lots in interesting suggestions.

I suggest: look at the accounting firms in the 5-12 positions (ignore the top 4!)

In those firms - find the person:
- in a city near you
- who works in an 'advisory' role
- who looks after 'mergers and aquisitions'


Go see them for a coffee!

They will help, and might happily manage the sale for / with you.

 

[fisicx]

I suggest: look at the accounting firms in the 5-12 positions (ignore the top 4!)

Not sure an accountant is the best person to advise on a business sale.

 

[Rydale]

Not sure an accountant is the best person to advise on a business sale.

I literally met 2 recently who would be good at this - from RSM and Mazars.