We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

Selling a business - broker vs DIY?

Options
Hi - I'm looking to sell my small business. I've had it valued by a national brokerage business however opted to list it myself on a number of business for sale websites (much cheaper than using the broker). Had a few nibbles but not much more and starting to think about going back to the broker. Ideally I'd like to sell within 6 months. Is this realistic? Advice on using broker? Thanks

Comments

  • Aquamania
    Aquamania Posts: 2,112 Forumite
    littlem83 wrote: »
    Hi - I'm looking to sell my small business. I've had it valued by a national brokerage business however opted to list it myself on a number of business for sale websites (much cheaper than using the broker). Had a few nibbles but not much more and starting to think about going back to the broker. Ideally I'd like to sell within 6 months. Is this realistic? Advice on using broker? Thanks

    Well as you admit, you've had little luck on your own.

    So I would suggest you ask the broker to help you sell it for the amount he claimed it to be worth.
    (Remember: something is only worth what someone else is prepared to pay for it)

    If he gets you a suitable buyer, remember that 50% (or whatever is left after his fees) of something is better than 100% of nothing.

    On the other hand, if he can't find anyone to buy it at the price he claims it's worth, then that will tell you something about the broker.
  • littlem83
    littlem83 Posts: 10 Forumite
    Thanks for your reply. The broker wants £450 upfront and then 5% of the sale when complete. Is that average for this does anyone know?
  • Pennywise
    Pennywise Posts: 13,468 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    littlem83 wrote: »
    Thanks for your reply. The broker wants £450 upfront and then 5% of the sale when complete. Is that average for this does anyone know?

    Sadly, upfront fees are common in business sales. Even more sadly, many of the bigger chains of agents deliberately over value your business and promise they have lists of people waiting to buy "a business just like yours" to con you into signing on with them and paying their up front fees. After six month, with just a handful of people coming to look at it (if you're lucky), they'll then suggest reducing your price and more advertising (for which they charge) and so on it goes until the price comes down far enough to where it should have been in the first place (2-3 years later), after the agent have had several thousand pounds from you and you've wasted a couple of years of your life.

    I'd suggest you find a more local, reputable, business sales agent who are more likely to value your business more realistically in the first place and less likely to charge up-front fees.

    I've had lots of clients who've signed up with the larger/national chains, and only 1 or 2 have ever sold through them, and always at far lower prices. I've also had lots of clients who've marketed their business themselves on the various business sales websites (such as Daltons Weekly etc) and have been successful - there's a lot of people out there who look at the websites so lack of interest in your case is probably because it's over-valued rather than no-one looking on the web!

    Some of the larger broker firms make their money from up front fees and advertising - if they sell a business occasionally, that's the icing on the cake for them.

    Please be VERY wary of them. Get at least 3 large agents round to value it and give you their costs and plans for how they'd sell it. Then get a couple of local firms in too, and see what they'll value it at and get their views on saleability, timescales, etc. Go with the firm that you feel are more interested and more likely to sell, not the ones who put the highest values on it.
  • nonnatus
    nonnatus Posts: 1,458 Forumite
    Without knowing what KIND of business you're selling, it's difficult to advise. I've just sold my Internet based retail business. It took under six months and I avoided a broker. I'd previously had dealings with such "interesting" people and was left Bankrupt.


    This time around I did it myself. I used common sense to value the business - I sold the physical stock for £x, some fittings and fixtures for a further £x and then looked at the latest Net Profit figure - I asked for 50% of that figure as extra.
    I asked myself if I would pay that for the same business and felt it was fair.
    I advertised on "businesses for sale.co.uk" and had a HUGE number of responses. The hard work was whittling out the serious buyers from the people who just wanted to have a good poke around the Business!!


    I have a fabulous Accountant who provided advice and I used a local solicitor to draw contracts.


    I got less than I was asking for, but I'm happy with the result and I don't owe £1000's to a "BROKER".


    Loads of ways to skin a cat, as they say - you have to do what makes you comfortable...
  • littlem83
    littlem83 Posts: 10 Forumite
    Thank you - all of that information is extremely helpful. The business is bricks and mortar retail with associated services (children's parties, hen parties, weddings and workshops). I think the valuation is realistic but then I would say that - it's my business! Annual turnover is £60000, gross profit margin 85%, net profit this year of £24000. Price includes fixtures and fittings and it is currently listed as £49500 + SAV (broker valued it at £55000 + SAV) Does that sound like too much? We have 6 employees so the business can be run without too much input from the buyer or they could increase profitability by reducing staff costs. The business is still pretty young - 14 months - I suppose that might affect things? The books are healthy though and it's growing quickly. I will definitely get some more valuations and look for a local broker. I'd be so much more comfortable if I didn't have to pay upfront costs - and happy to give away a greater % of final sale - I'd just be so much more convinced they were actually trying to sell it!
  • Pennywise
    Pennywise Posts: 13,468 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    littlem83 wrote: »
    Price includes fixtures and fittings and it is currently listed as £49500 + SAV (broker valued it at £55000 + SAV) Does that sound like too much?

    Yes, I'd say it sounds far too much if it's mainly for the goodwill and there are no or few assets included in that price. But let's get to the detail.

    What about the lease? This could be either an asset or a liability depending on it's terms. How long is it for? Is it tenant or landlord repairing? what is the state of the premises? Have you any rights to early termination (break clauses)? Is the business easy to relocate?

    What about the staff? How much are they owed in holiday and redundancy pay if you closed down today? - That's a liability. How much time do you (your family) spend in the business - no-one is going to pay you a premium for a "job" so the new owner needs a decent "wage" for the time they're going to have to spend and to cover the risks and finance costs etc. If you're working full time in it, then it's not making any "profit" as you'd expect to earn £24k in a job with the same kind of hours, stress, responsibilities, etc.

    Do you own the equipment that you are selling or is some/all of it on lease/rental terms?

    Does the £49k include equipment and stock. If there was say £25k of stock and equipment, and the balance of £24k was the goodwill, then it looks more appealing, but if it were £49k for the goodwill, with extra on top for stock and equipment, then you've virtually no hope. So, what are the values of stock and equipment.

    Is the value of the business due to it's location, it's staffing or is it down to you personally? You're not selling yourself so if it's a "personal" quality service, then you've nothing to sell. If it's location and there are no alternative premises, then you've an asset in terms of the lease (if favourable terms). Finally, how well is it protected and how easy would it be for someone else to copy you nearby?

    So you see, that's why it's hard to value a small business. People who come along lazily saying 3 times profit, or 1 times turnover, or whatever other equation they dream up in the bath are doing you a great disservice. Also, a small business can be worth different things to different people.

    At the end of the day, you've had it on the market for a while at a high price and got little interest. That says it all really. If it had been underpriced or even sensibly priced, you'd have had the enquiries and interest (assuming you'd placed it on the popular business sales websites).

    As an example, we had a client whose business turned over £1.5m of sales and had a net profit of £750k per year, consistent year on year, well established. Easy terms lease for their premises. They spent a year trying to sell it, best offer was £1m (1.3 x profit) but there were so many indemnities and claw back clauses required by the buyer, the risk was too great (as they could have had to pay it all back if the business didn't perform after the sale). They eventually sold it for £300k (less than half a year's profit) in a cash deal with no claw backs nor indemnities.
  • Aquamania
    Aquamania Posts: 2,112 Forumite
    edited 14 March 2014 at 11:00AM
    littlem83 wrote: »
    Thanks for your reply. The broker wants £450 upfront and then 5% of the sale when complete. Is that average for this does anyone know?

    One thing you should know as an existing business owner is that everything in business is negotiable. So negotiate :)
    (after getting a few quotes from different brokers)

    e.g. agree with the 5% commission on the sale, but do not accept any upfront fee. Offer instead say an additional £1350 (3x £450) or even £2250 (5x £450, which is still only about half the difference you have reduced the asking price by ;)) if the broker obtains a buyer for you that leads to a successful sale at or above the sale price he valued the business at.

    The response you receive will be a good indication.
    If rejected then presumably either:
    (a) the broker is already far too busy and probably won't spend too much time & effort trying to sell your particular business anyway.
    (b) the broker knows they are unlikley to find a successful buyer at the value they have told you.
  • nonnatus
    nonnatus Posts: 1,458 Forumite
    Wow!


    What Pennywise said. I agree 100%.


    I think you're asking FAR too much I'm afraid. If I was looking for that sort of business, making just £24k Net Profit, I'd pay £12k MAX (plus cost of stock & F&F of course).


    You should ask yourself, would YOU pay £50k for a business that only made HALF of that in its last year? You're asking a new owner to work very hard for 24 months, just to potentially break even...


    I wish you Luck anyway.
  • Aquamania
    Aquamania Posts: 2,112 Forumite
    edited 14 March 2014 at 11:36AM
    nonnatus wrote: »
    Wow!


    What Pennywise said. I agree 100%.


    I think you're asking FAR too much I'm afraid. If I was looking for that sort of business, making just £24k Net Profit, I'd pay £12k MAX (plus cost of stock & F&F of course).


    You should ask yourself, would YOU pay £50k for a business that only made HALF of that in its last year? You're asking a new owner to work very hard for 24 months, just to potentially break even...


    I wish you Luck anyway.

    Whilst valuations of a business do vary by sector, you don't get many that come at only twice current annual earnings or less. About 5 times annual earnings is about average (but some sectors can be valued at 20x or more)

    Fixtures, fittings, machinery, buildings etc usually come as extra. (It's not really clear from OP whether or not this is the case)

    However the young nature of this business may throw all the above into insignificance. Due diligence would need to take place looking at things like how last years profit was actually achieved (e.g. was this as a result of normal growth or the result of an extraordinary one off event?), what the past growth actually was and what the future growth (if any) is likely to be.

    As I said, a business is worth what someone else is prepared to pay for it.

    e.g. this site had EBITDA of £12.6m for year ending Oct 2011 (up from £8.4m in 2010) and was sold in 2012 for up to £87m.
    http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11222203
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 350.9K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.5K Spending & Discounts
  • 243.9K Work, Benefits & Business
  • 598.7K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.2K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.