November 22, 2023
Let’s take the typical firm of two partners, support staff, on the high street undertaking conveyancing, wills & probate and family law. The family law solicitor is retiring and the two partners have had enough and want to dispose of the business.
Seller’s Perspective – Future Potential
You can guarantee that one of the partners retiring will want to emphasise when we speak to them that the family law department is ripe for potential and for the right buyer could generate hundreds of thousands of pounds that it is not now currently generating. If only the family solicitor was a bit younger, more enthusiastic and the firm was able to spend x amount more advertising the work to the public.
In the partners’ minds they see the family law department as being worth a substantial figure because of its future potential, and not the money that the current family solicitor has been generating. As the departing family solicitor is elderly, looking to retire and has not put much effort into increasing workload then the value of their business is much higher, because a buyer will be able to see the future potential growth.
Buyer’s Perspective – Future Headache
If we consider the same firm but from the buyer’s perspective what exactly would the buyer get? The two partners are looking to sell up because they’ve had enough and don’t want to have to go through the whole recruitment process, the family law solicitor is retiring so the buyer is going to have to find a family solicitor to take it over. Apart from this, there is very little else other than a lease and the support staff, the reputation and the clients.
Predictive Response
If we go to buyers and tell them all about a business that is ripe for future potential, buyers will invariably come back to make the very valid point that the current owner has not taken the opportunity to seize the chance to generate the extra income themselves, so why are they trying to sell the business if it’s ripe for potential with a really easy way of getting future growth?
Buyers are not daft and this sort of sale is not one where the value is the family law department. If there hasn’t been a lot of work coming through the door for some time this will not play a large part in the deliberations of a typical buyer. The typical buyer will simply want to look at the firm in the round and at all departments and not just the family law department.
As an aside, we recently looked at acquiring a business to add to one of our companies. The seller had a price in mind that reflects the future growth & potential, and has valued the business at about 5 times the value we would be prepared to pay based on existing value to us. It is the old adage – a business (or a house for that matter!) is only worth what the buyer is prepared to pay.
Summary
Whilst future growth is of interest to buyers because they can see the chance to improve turnover and profits if they can add value to a particular part of a business, it doesn’t tend to be the driving factor in any purchase. Buyers are after what is in a business at the moment because that is the value, not any future possible value that may arise or there again may not.
When you are coming up to sale you need to look at actually what there is for sale and how to maximise this in a way that is attractive to buyers. Often, the information sellers think is the stand out feature of their business is not very stand out at all..
If you have any questions about the content of this article please contact us – always happy to help. Please note that we have a wealth of information on our website for viewing by prospective buyers and sellers, but we only allow access to premium content (which includes this article once published) to our own clients. For further details of our law firm broker services please visit www.jonathanfagan.co.uk
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