October 15, 2024
Making a Business Appeal to Buyers & Investors
Here’s a few obvious statements: Accountancy practices tend to be bought by accountants, Solicitors’ firms tend to be bought by solicitors. In both scenarios, the best buyers tend to be a) those backed by finance, b) accountants/solicitors with longer term growth plans in place or c) accountants/solicitors linked or partnered with investors.
This is a guide on how to make your accountancy or law firm (we specialise in both) attractive to investors/buyers and a few don’ts as well as all the do’s!
Selling a professional services business is not like a sports shop selling a pair of overpriced trainers to a teenager; a senior partner of a London accountancy practice recently compared the two (its not that simple and buyers are not gullible suckers!). You need to avoid a number of pitfalls and be aware of the needs and interests of potential buyers.
Here are a few tips to make your business stand out to investors for all the right reasons, and also a few ways to avoid standing out for the wrong reasons.
I have a huge customer
This is definitely not a good way to appeal to buyers. It is not a good thing to have a single customer accounting for 10% or 20% of your turnover! What happens if the huge customer sacks the firm after the seller leaves?
We’ve never had any debt
No debt? Great! Although most buyers care not one iota about your debt. They are more interested in what the business has at the present time. A lot will be specifically interested in “net assets” – total assets minus total liabilities. No debt could mean a bad credit history or that you don’t have a credit history and the business will be hindered by this in future.
Don’t Sell Yourself
If you’re selling your business, chances are you will be looking to leave asap. You don’t want to play up your own importance or explain how indispensable you are to the business.
Example:
“we are number one on Google for organic search for ‘accountants in Guildford’. We pay nothing for our advertising.”
This is not great. What happens after you leave and all the work you put in stops? The site goes down, the business stops generating sales.
Pre-Sales Packs Need Careful Thought
Don’t write your Pre-sale pack (also called an ‘Information Memorandum’) yourself.
We prepare pre-sales packs for our Gold & Platinum Sellers all the time, and what works is very simple: facts. Buyers want to know facts. They are not the slightest bit interested in possibilities or waffly information about how amazing your firm is. Pre-sale packs we have seen written by owners often exaggerate the positives and conceal the negatives.
Your versions of your USP will often be good reasons to not buy
Here are a few examples as to why your perceived USP is not a positive.
Staff wages are low and affordable.
Wonderful, so basically you have a staff team who could up sticks and leave at any time because you haven’t been paying them enough!
We do a lot of work ourselves and saved money. A buyer could do the same and work even harder.
Complete no-no for buyers. They want stand alone businesses capable of running themselves. These types of firm attract the most interest by a country mile. Hard working, well paid & well trained staff are the value in a lot of businesses.
We reinvested any profits into the business.
Buyers see this as “there was no spare money in the kitty.”
Our marketing budget is miniscule and all sales are from recommendations.
Buyers always conclude that without any statistics to show what marketing works the new owners will have to start from scratch and waste a lot of money building up new marketing streams. Buyers like evidence of ongoing work from referrals, advertising, walk in trade, recommendations and many other sources. This type of business is much more interesting that one that gets all its trade from people asking for Bob Smith the conveyancer.
Buyers will wonder why you haven’t advertised in the past and generated more turnover this way. Why would anyone miss out on an easy opportunity to generate more income?
Hockey Stick Graphs really are a thing!
The hockey stick graph is a lovely economic demonstration to any gullible suckers wanting to buy a business that this is what will happen the day after you buy a company.
Here is the hockey stick graph:
If you try to sell your business on this basis, most buyers will immediately back off. They can see that any future figures are just wishful thinking. They want hard facts to consider.
We often hear from older solicitors: “our business would be ideal for a young, enthusiastic solicitor looking to make a name for themselves.” Yes, if the younger solicitor wants to work 90 hour weeks modernizing the business, developing it, recruiting staff teams and doing all the things the current owners haven’t done. They are hardly likely to want to pay lots of money for the privilege.
If you have a hockey stick graph in your sales particulars, delete it!
Companies House tells the truth
How many times have we seen this.. Ensure claims in your documentation match your information at Companies House, your website, the ACCA site, the Law Society site, Facebook, the internet and anywhere else. We regularly see Companies House indicating a business has 1 employee and a firm indicating they have 25 members of staff (numbers slightly exaggerated for this article but very common!). LinkedIn profiles need to be checked and double checked – are they accurate?
Buyers always check you out on Facebook, LinkedIn and elsewhere they can think of. They are looking for negatives to knock the price down. Don’t make it easy for them.
If you are selling, sell. Don’t prevaricate
Sellers regularly say “if the price is right, we will consider selling”. This is simply posturing. Sellers like to play “hard to get” when in fact they want to flog the business as quickly as possible. Its fine to indicate to a buyer that you hold an offer and what that offer is. This can speed things up somewhat. However pretending you are not bothered about selling when you are is not a good approach.
Make sure your numbers add up – check and double check
Easily done, but check your turnover and profit figures in your sale documents. So many firms get them wrong. Accountants seem to be particularly good at getting their own figures wrong!
‘Potential’ is a load of hot air
You think your business has great potential and is entitled to a high premium. Most business owners waffle extensively about their business potential.
Here’s a quick advisory note – buyers don’t care one hoot about possible future business. They are not going to pay for it!
Furthermore, potential future business can lead to all sorts of offers being made along the following lines:
Documents
Make sure you have all the documents you will be asked for as part of due diligence. If you haven’t got them, get them sorted out asap. We provide our sellers with full lists of documents likely to be asked for. Buyers spend 10s if not 100s of hours going through due diligence requests.
Know your exit route
Not knowing how you plan to depart adds uncertainty to a deal. Being able to articulate your plans makes life a lot easier for the buyer at the outset. For example “I plan to work for 12 months on a consultancy basis and then stop working unless needed. I expect to be paid an hourly rate for any work I do during this time and an introduction fee for new business.”
SWOT Analysis
This is a wonderful way of giving buyers a lot of information that directs them in the right directions. You don’t want to give them too much information, but does indicate you understand the positives and negatives about your business. Take the example above regarding Google search traffic. You can cite this as a positive, but what about also mentioning the negative and indicating steps taken to insure against this. So instead of just indicating that your trade comes from your organic listing in Google for a search term, why not also show that you have external advisers assisting you with SEO, or working on developing a credible PPC plan to run alongside?
Summary
I hope this article has given you food for thought. Painting the best picture of your business for a buyer requires time, professionalism, experience and judgement. It is not a marketing exercise; you can’t ‘sell’ something that isn’t there. Your business has a value to buyers and they know what this is.
For professional, confidential advice about your accountancy or law firm business, please get in touch with us. www.jonathanfagan.co.uk
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