Case Study 1

Within ten minutes of entering the business and speaking with the manager I knew that finding the right buyer would be essential if I were to stand a chance of not only selling this business but at getting the best price my client.

The premises were very shabby however the core business was extremely impressive, had masses of potential with huge barriers to entry due to the costs associated with buying new specialised equipment, obtaining suitable laboratory space, training staff in the use of instrumentation, obtaining accreditations and gaining the relevant licenses not to mention the time taken to gain the client loyalty and even then, having the right driver behind the wheel would be critical to its future.

Each meeting, phone conversation, email with the vendor was difficult as he was suffering from mild memory loss due to his old age and couldn’t remember a lot of what we had discussed previously so my battle with him was very uphill. I knew that I also had to look out for his interests when negotiating a sale and I made sure that every conversation between me, the vendor and the purchaser was well documented.

Everything that you should not do when trying to sell a business, he did. He increased staff wages as he thought it would the right thing to do for them moving forward, he purchased new equipment, he spent money on updating the computer and phone system, he took on new staff, all of which either reduced the net profit or was expected by a purchaser to be included in the sale price with no extra investment.

The owner had established the business over 18 years previously and had got it to a stage where he was finding it hard to move forward at a pace that it should have been worthy of. Each year turnover and profits had been increasing but the business and staff were in a constant struggle with their work load due to the severe lack of management, systems and procedures and even simple direction. This was a business that was seriously performing under its potential.

Once the appraisal had been finalised and all had been agreed on between me and the vendor, it was time to do my homework on the potential purchasers. It was quite apparent that this business was not run of the mill and most potential buyers would have absolutely no interest whatsoever, so I had to be very specific when seeking a buyer. I made contact with a select few companies, all based interstate or overseas as there are no other competitors here in WA to speak of.. I managed to get two companies who were extremely interested in buying out this business as they saw the huge potential that it held for them. The staff were all qualified and all wished to stay on after a sale occurred, the substantial amount of plant and equipment was all in good working order, some of which was brand new and the work just kept rolling in without much effort at all.

There was hurdle after hurdle, the vendor did not understand the importance of providing me with the information I needed to help me get this deal across the line, and it was a constant uphill battle!

My saving grace in the whole process was with the “acting manager” she understood that the owner was more of a hindrance than a help not only in the day to day operations but also with the information that I so desperately needed firstly to put the correct value on this business and then to enable me to present it for sale. After a very long haul, and lots of back and forth communication between the business manager and the owners accountant to gain the documents I needed, I was finally able to get enough information to enable me to not only give an accurate opinion for the selling price but to find the right buyer and successfully follow through to settlement.

The Manager of the business advised me that the owner had tried to sell the business himself the previous year and had found a suitable buyer but the communication between himself and the purchaser was so vague and misconstrued that both parties eventually agreed not to proceed as neither party was 100% sure of what they were selling or buying therefore the sale after many months of negotiation inevitably fell through.

This is where the importance of correct and accurate information is clearly visible. The vendor had tried to sell his business himself without the aid of a Business Broker and had been approached by a very suitable buyer the previous year however negotiations finally came to a grinding holt at settlement as neither the seller or the buyer had a clear understanding of how the settlement would take place or what was to included in the sale and it turned into a very expensive and fruitless exercise for both parties.. This is something that sellers often overlook. Selling a business is nothing like selling a house. A vendor must understand their obligations and responsibilities of a written contract and know that they are still liable for what they have sold even after the sale has taken place. The information provided must be accurate and provable in as many ways as possible to protect themselves from litigation down the line.

In all business sales, not just this one, it is imperative that the procedure is followed through correctly to not only avoid the sale falling from through but to reduce the chance of the purchaser coming back to you down the line and beginning any sort of litigation proceedings.

This is why at Empire, we produce a full written document outlining all that the business entailed, the roles of the owner and the staff members, the products and services, past history, suppliers, stock, plant and equipment, target market, positioning and strategy, barriers to entry, differentiation and competitive advantage, lease details, what was to be included in the sale, the owners obligations both pre and post sale and also how the sale would be documented. Of course there is also the financial side of the business and the necessary financial statements were provided with an emphasis on confidentiality between all parties maintained at all times.

The procedure was carried out correctly and the business settled in the correct manner for a much higher selling price than what the vendor tried to sell for in the previous year backed by supporting documentation and an accurate appraisal with each party fully aware of what they were buying and selling.

The buyer was happy and confident with his purchase and the owner has now happily settled into his retirement.

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