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Selling Your Business Successfully
By
Dr. COLIN THOMPSON

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Selling Your Business Successfully
By
Dr. COLIN THOMPSON
Building and Communicating Value will be the single most valuable investment your
organisation makes on the road to delivering sustainable value when you come to sell your
business.
The creation of value is the primary objective of any organisation and research indicates that
the pressure senior managers already face to deliver value will intensify significantly into the
future with a global economy.
Today, it is vital that all people build and deliver superior long-term value to meet and exceed
the expectations of all its organisations shareholders.
Discover how this report will enable you to deliver superior long-term value to and encompass
the retention of its employees, customers, suppliers when you sell the business.
Open your mind up to the `Challenges` we face in a global trading environment to be
successful in selling the business for the best price.

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Selling Your Business Successfully
by
Dr. COLIN THOMPSON
Published in 2008 by:
Cavendish
Kings Court
School Road
Hall Green
Birmingham
B28 8JG
UK
Telephone: + 44 (0) 121 244 1802
Fax: + 44 (0) 121 733 2902
email: info@cavendish-mr.org
Website: www.cavendish-mr.org
© Copyright 2004 Colin Thompson
First Edition 2004
The material contained in this report is set out in good faith for general
guidance and no liability can be accepted for loss or expense incurred as a
result of relying in particular circumstances on statements made in the report.
The Laws and Regulations are complex and liable to change, and readers
should check the current position with the relevant authorities before making
personal arrangements.

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Contents
PAGE
Executive Summary 2
Profile: Colin Thompson 5
Selling Your Business Successfully 6
Planning Your Exit from the Business 6
Identify Your Exit Options 9
How to Sell Your Business 11
Successful Planning 13
Finding Fulfilment after the Business 14
Key Factors that Influence a Successful Sale 17
Reasons for Selling a Business 19
Steps to Sell your Business 20
Q&A 21
Added Value Solutions 25
PROVIDING THE SOLUTIONS FOR SUCCESS

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PROFILE
DR. COLIN THOMPSON
Colin Thompson has over 25 years experience as Managing Director and Director. His
career to date has given him a complete exposure to business management and
management of people. He has wide experience in PLC and private company’s in top
level management of increasing sales/profit. Also, turnaround and re-engineering
experience linked to new corporate identities and successful mergers/take-overs. Plus,
developed many business models to increase profitability.
Technical skills/knowledge
 Directorships
Managing Director
Director-Print Management and Workflow Solutions
Director-Operations/Customer Service and Marketing
Director-Financial and Administration
Non-Executive Director.
 Chairman - Oxford College of Management Studies
 Professor-European Business School, Cambridge
 Initiated New Corporate Identities, also Managing Director:
Datagraphic Inc. UK, division of USA Group
Forms UK plc (etrinsic plc) division of InnerWorks Inc. USA Group
WH Smith PLC-Business Services -Print/Distribution and Workflow Solutions
Kenrick & Jefferson GroupLtd
Mail Solutions Group Ltd, division of SSWH PLC

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 Able to successful bring new Products and Services to market i.e.
a) Set up new UK `green field` manufacturing/distribution/workflow systems
operations and market new Products and Services.
b) Research, development and design of a Print Management Service, including
writing a book `Print Management and Workflow Solutions`, plus many other
publications and business models on CD/Software.
c) Produced CD-ROM `Interpreting Accounts for the Non-Financial Manager`-
adapted from my two-day course for Anderson’s-Chartered Accountants for
their clients. Plus, CD-ROM on `Managing for Customer Care`.
My training and knowledge has enabled me to take an overall view of an organisation,
its operations and strategy. Also, to understand with a degree of competence in a wide
variety of business skills and functions. I have dealt with challenges at a high level of
complexity, especially those that cut across the common functional divisions of business.
Developed several business models to raise the `bottom-line`.
Education: BA, MBA, DBA, CPA, FFA, MCIPD, FIOP, MCIJ
My experiences and knowledge have enabled me to write and have published over 400
articles, several publications, research reports, and CD’s/Software on business models
plus speaking at International Conferences, Seminars and Lectures.
DDL: + 44 (0) 121 244 0306
Mobile: 07831 588310
email: colin@cavendish-mr.org
Website: www.cavendish-mr.org

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`Planning your exit from the Business`!
Far too many business owners fail to plan for their eventual exit from the business.
For some, it's because they cling to the widely-held myth that a knight in shining armour will come
riding along and make them an offer for the business they can not refuse. Wrong! Others simply get
so wrapped up in the day-to-day details of running the business that they never take time to plan for
their future.
Without some sort of plan in place, you will likely receive a much smaller financial return on the
business than you deserve. Worse, you run the risk of wandering aimlessly through retirement
wondering "Who am I?" and "What went wrong?" Conversely, when you make conscious, purposeful
choices about when and how to leave the business and what to do afterwards, you end up with an
infinitely more rewarding outcome. Winning beyond business -- having a rewarding and fulfilling
second half of life -- requires addressing the following issues:
1. Determining when, where and how you will leave the business
2. Maximising the value of the business
3. Identifying your successor (if you decide to transfer rather than sell the business)
4. Estate planning to protect your assets and transfer wealth with a minimum of taxes
5. Discovering who and what you are beyond the business
6. Identifying your true passions and "callings"
7. Finding new ways to achieve the sense of fulfilment your business currently gives you
8. Setting a course for the second half of life
By addressing these issues through careful exit and life planning, you dramatically increase the odds
of having a successful transition out of the business and into the next phase of life. Now go and do it!

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Exiting the Business
As the owner of a privately held business, your company represents your biggest and most important
asset. It is the difference between a planned and an unplanned exit can be very significant.
First, understand that as the owner of a privately held business, you have two key roles -- CEO and
shareholder. As CEO, your job is to make the best decisions for the business. As shareholder, your
job is to make the best decisions about your investment. When it comes time to exit the business,
these two roles often do not coincide. Effective exit planning must therefore take into account the
differing needs of each role.
It helps to understand the key principles of exit planning:
1. Understand the full extent of exit planning. Exit planning encompasses a wide range of
activities that include:
o Deciding how, when and to whom to sell the business
o Identifying a successor if you intend to transfer rather than sell
o Determining what you will do with your life when you no longer own/run the company
o Taking steps to maximise and protect your assets (estate planning)
Exit planning also involves a process, not a one-time event. Depending on the owner and the state of
the business, it can take several years to develop an exit plan. Once in place, it should be revisited on
a regular basis as business and life circumstances change.
1. Separate the job from the investment. Exit planning for the CEO involves figuring out what
to do after the business. Exit planning for the Shareholder involves turning an illiquid
investment into cash and investing it in something else. In a successful exit, each role
accomplishes its separate goals.
2. Position for the transaction. Selling a business is much like selling a home -- in order to
receive full value; you have to get it in top shape. Because positioning a business for sale can
take several years, we recommend managing the company to maximise shareholder value
rather than just top-line growth. By focusing on the areas needed to maximise value, you
automatically keep the business in shape to sell.
3. Time your exit. Receiving maximum value for your business requires selling at the right time,
which means paying attention to market and business conditions. Market conditions
encompass things like interest rates, merger and acquisition trends and the availability of
investment capital. Business conditions have to do with your frame of mind in regard to
running the business.
Creating the Exit Plan
To create an effective exit plan, I recommend a three-step process:
1. Set goals. This first step addresses three critical questions:
o When do you, the CEO, want to stop working here?
o After selling the business, how much would you like to have in the bank so you don't
ever have to work again (or worry about it)?
o When do you want to get liquid, stop investing in this company and invest in
something else?

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Answering these questions identifies three important goals: the date the CEO will leave the business,
a financial target and the date the shareholder will leave the business. The answers to questions one
and three are often very different.
1. Conduct a current state analysis. Step two begins the process of determining how to
achieve the goals set in step one. This involves a careful analysis of three key points -- the
value of your business, the strengths and weaknesses of your business and your company's
strategic position in the marketplace.
Start your analysis by determining a `reasonable and realistic` value for your business and
compare it to your answer to question number 2 in step one. This identifies the gap between
how much your business is worth and how much you need to have in the bank in order to
finance your retirement. Next, identify your company's strengths and weaknesses so you can
fix any glaring defects or problems. Finally, understand your company's strategic position in
the marketplace by asking questions like:
o Which companies are buying other companies like mine?
o Which companies are being sought by strategic buyers and why?
o Does my company fit that profile?
o Who is likely to be a strategic buyer for my business?
The ideal time to sell, is when your personal goals, the value of the business and market conditions
are all in sync.
3. Identify your exit options. Privately held business owners have four basic ways to cash out:
o Sell to an outside entity
o Transfer the business to the next generation
o Sell to the management team and employees (ESOP)
o Initial public offering (IPO)
Each option comes with its own complex set of issues and questions that need answering. Look at all
the available options, comparing them side by side, and identify which one will best help you
accomplish your goals.
Understanding the value of your business also represents a key element of the exit planning process.
There are four basic approaches to valuation:
1. Asset-based value. This method includes book value, adjusted book value, liquidated value
and replacement value.
2. Earnings-based value. For businesses without a lot of assets, earnings provide a more
reliable indication of value. Earnings-based values can vary widely depending on a number of
factors, such as pre- versus post-tax or current versus future earnings.
3. Cash-flow value. The most common cash-flow method involves discounted cash flow,
whereby you project future earnings and value that stream of earnings by discounting it
according to an agreed-upon number.
4. Public company multiples value. This method compares public company multiples to private
companies by identifying what a similar company is worth in terms of price to book, price to
earnings, price to sales, and price to cash flow.

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Many owners want to take some chips off the table and still retain control. I identify three methods that
work well:
1. Employee stock ownership plan (ESOP). An ESOP is basically a qualified benefit plan that
has vesting schedules and contribution limits. Unlike £500K, a profit sharing or pension plan,
an ESOP buys company stock, is exempt from diversification and can borrow money.
2. Re-capitalisation (restructuring). Re-capitalisation involves forming a new company to
purchase the assets of the business.
3. Multi-stage sale. This kind of deals works best when there are very high barriers to entry or in
high-growth situations where a strategic buyer can afford to wait a while to achieve the desired
return.
Timing also plays a major role in landing the best deal. To get the most for your business:
 Do not sell when you're not having fun.
 Do not wait too long to sell.
 Be prepared to sell at any time.
Selling the Business
The best time to sell your business is when the future of your company looks brightest, not when
you've reached a peak or have entered a down cycle. In particular, I recommend selling when:
 You have dominant market share or a recognised position, such as price leadership
 You have some sort of technological or competitive advantage
 Margins are good and have the potential to get even better
 You have something -- such as infrastructure, distribution or access to a niche market -- that
can be leveraged by the right buyer
 Your industry and market are in an up cycle
Before posting the "for sale" sign, however, it helps to familiarise yourself with the following concepts:
 Recognise that the company is the product.
 Look at your company through the buyer's eyes.
 Understand the buyer's motivation.
 Enhance the intangibles that make your business attractive.
 Know the value of your business.

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To get the highest price for your business:
 Never state a price for your company. Let the market determine the price by discreetly
obtaining offers from a variety of potential buyers.
 Negotiate with multiple buyers. The quickest way to erode the value of your business is to
negotiate with only one buyer.
 Seek out strategic buyers. A motivated strategic buyer will almost always outbid a financial
buyer.
 Use an intermediary.
 Understand product and industry life cycles. Sell your company when both of these are on
an upward growth curve.
 Stick with your exit plan. If a deal doesn't jibe with your overall exit plan, don't sign on the
dotted line.
How to Sell Your Business
The first step in selling a business, involves determining not how much or to whom, but when. Proper
timing can increase the value of your business by millions. It also has an impact on the quantity and
quality of potential buyers, and it affects the company's ability to continue on after you sell. Start out by
asking these questions:
 When is the right time to sell?
 Do I want to stay with my business after I sell?
 To whom should I sell?
 What is my business really worth?
 What kind of help do I need?
 What are the risks involved in selling?
 What should I be doing now to prepare for the sale?
Smart business owners begin preparing the business for sale long before they actually put it on the
market. I offer the following checklist to guide your preparations:
 Document your vision.
 Prepare audited and reviewed financial statements.
 Make cosmetic improvements.
 Identify business opportunities.
 Recast your financial statements.
 Perform environmental reviews.
 Purge obsolete assets, excess expenses and non-operating activities.

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 Settle any existing lawsuits.
 Document operational procedures.
 Evaluate your management team.
Break down the process of selling a business into four distinct phases:
1. Preparation:
o Assess the current state of the business and identify any immediate "value
enhancers."
o Prepare a sale memorandum (also called an "offering" memorandum).
o Identify and qualify potential buyers.
o Craft a marketing letter to attract potential suitors.
1. Marketing:
o Release the marketing letter through appropriate sources.
o Respond to interested parties by:
 Having each prospective buyer sign a confidentiality agreement
 Starting the process of pre-qualifying the prospects
 Releasing the offering memorandum to all qualified buyers
 Responding to their initial round of questions
 Preparing additional information as needed
o Conduct off-site meetings to scrutinise the potential buyers.
o Arrange for prospects to visit your business and "kick the tires."
1. Negotiating:
o Collect letters of intent from serious buyers.
o Strive to create an auction environment among the potential buyers.
o Select the most promising buyer and announce that you have accepted their letter of
intent.
1. Closing:
o Both sides conduct in-depth due diligence.
o Negotiate the "definitive purchase agreement."
o Sign and close the deal.

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To increase your chances of a successful sale, avoid these common pitfalls:
 Not being prepared
 Failure to check out the buyer
 Talking to only one buyer
 Talking with competitors
 Underestimating the value of the business
 Premature disclosure
Succession Planning
Succession planning answers the question, "If I die, become disabled or otherwise leave the business,
who will run the company and what will happen to it?" answering this question requires three basic
steps:
1. Identify the successors. When it comes to deciding who should run the business after you're
gone (assuming you do not sell outright), the options are:
o Family member(s)
o Partners and/or shareholders
o Professional managers or key employees
o Some combination of the above
From these options, select a successor according to two criteria -- who you want the business to go to
and who are best qualified to run it after you leave. Often, these two people are not the same.
1. Plan for every contingency. The next step involves planning for any and all events -- such
as retirement, death or disability -- that can trigger the succession plan. Be sure to identify the
appropriate successor in each case, because they may not be the same.
2. Memorialise the plan. Formalise and memorialise your succession plan by putting everything
in writing and creating the necessary legal documents, such as buy-sell agreements, partner
agreements and living wills. These documents also specify where the money will come from to
facilitate the transition of the business.
In the vast majority of cases, succession planning leads to a smooth, orderly transition of the business
upon retirement or the decision to sell. However, in the event of your untimely death or disability, your
succession plan should:
 Include an up-to-date financial statement
 Clearly state what happens with key employees, who is in charge, and what roles they play
 Identify a board of advisors to help your surviving spouse through the crisis
In addition, I strongly recommend writing a "love letter" to your spouse that details what will happen to
the business should you die unexpectedly and whom he/she can turn to for advice. When creating the
board of advisors, avoid anyone directly connected with the business. Instead, identify independent,
skilled business peoples whom you and your spouse both trust.

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The final pieces of the puzzle involve making sure your succession plan supports your estate plan and
vice versa. The secret to successful asset protection is to delegate wisely and well. This involves:
 Creating a team of specialists that includes:
 A tax-savvy Accountant
 An estate tax Solicitor
 A business valuation specialist
 A life insurance specialist
 A financial planner/money manager
 Identifying a team champion, someone who understands all aspects of your succession/estate
plan and can communicate your goals to the other specialists on the team.
 Clarifying your succession planning goals and expectations for your team champion.
To enhance your chances for a successful plan, avoid these common mistakes:
 Failure to plan
 Choosing a weak successor
 Lack of flexibility in the plan, particularly as it relates to the sale/transfer of the company
 Getting so caught up in worrying about tomorrow that you neglect what you do best -- running
your company and making money
Finding Fulfilment after the Business
I believe that how you plan to spend your time in retirement has a greater impact on your post-
business quality of life than all the business, financial and estate planning issues put together. They
also believe that exiting the business presents an ideal time to explore new possibilities and discover
(or rediscover) other aspects of yourself that may have been suppressed in the drive to achieve
economic success.
The biggest obstacle to this major life transition is that most entrepreneurial CEOs have invested too
much of their identity and self-image in the business. Not only do they find it hard to let go of their
position and explore other alternatives, many can't even think about themselves apart from the
business. Developing a meaningful life means recognising and accepting that you are much bigger
than your business and that life has much more to offer. By shifting your outlook and understanding
that you have 25 or more vital years ahead, you can re-invent and re-energise yourself and lead a
useful, rewarding post-business life.
To find new meaning and purpose in life after the business, I suggest the following strategies:
 Accept your own mortality. The process of life planning begins the moment you realise that
the road in front of you has grown shorter than the road behind.
 Look inside. At midlife, it's not so much what you look for as where you look for it. The
information crucial to a successful second half of life lies on the inside, not the outside.

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 Stay in conversation with yourself. During times of intense self-exploration, it helps to stay
in close touch with your thoughts, feelings and emotions. This important self-dialogue can
occur in many ways, such as keeping a daily journal, engaging in meditation or participating in
a group (i.e. church, spiritual or self-help) whose members get together for the main purpose
of "waking up."
 Don't rely on hobbies or leisure activities. For high achievers, personal fulfilment
represents an integral component of life. Leading a meaningful life in retirement requires
finding something other than the business to provide that same fulfilment. Although enjoyable,
hobbies and leisure activities rarely fill the void.
 Use outside resources. These can include:
o Books, audio tapes and workshops on personal growth
o Close friends and confidants
o Personal coaches and mentors
o Support groups
o Your spiritual community
 Involve your spouse or significant other. Recognise that you're not the only one going
through major transition -- so is your spouse and your marriage. Setting off on the journey
together will pay tremendous dividends along the way.
 Listen to the voice of "yes." Identify the forces in your life -- the people, skills, resources and
teachings that can help you turn a "no" into a "yes" -- and wholeheartedly embrace them.
The Search for Fulfilment
The journey to personal fulfilment tends to move through four predictable phases -- shake-up, self-
exploration, renewal and integration. Passing through each phase takes roughly a year, with the
primary issues in each phase laying an important foundation for the next.
Shake-Up. Shake-up is a precursor of a life transition often known by other names, such as mid-life
crisis, paradigm shift or wake-up call. It involves confronting a set of obstacles and challenges that
your vast skills and past experience cannot address, let alone solve. Overcoming these obstacles
requires letting go of your old self-image and crafting a new vision that can sustain and inspire your
new life passion. Key questions during this phase include:
 How much time do I have?
 Who am I besides my business?
 What are my priorities?
 What am I doing that no longer fulfils me?
Self-Exploration. This phase involves examining what was revealed during shake-up. You discover
unfamiliar aspects of yourself, parts left undeveloped, hidden or rejected. Rather than avoiding or
denying these parts, you begin to mine them as a source of new energy, untapped wisdom and
imagination. The fundamental question during self-exploration is, "What do I want?"

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Renewal. Renewal is a time for connecting with your newfound vitality, passion and calling. It involves
reprioritising life goals so they mirror your growing new vision. The key question during this phase is
"What is my passion?" Renewal also addresses questions like:
 How would I like to be different as a person five years from now?
 What do I want my legacy to be?
 What is my life purpose?
Integration. Integration allows you to put your new sense of self and new life passion actively and
consciously into the world. Then, through the art of mentoring, you generously share this "knowing" as
a living legacy for your peers, the community and generations to come. The key question during
integration is, "How can I serve?"
Finding personal fulfilment involves a cycle of continuous self-exploration, growth and renewal, of
constantly pushing your own boundaries and being willing to redefine yourself in new and more
meaningful ways. At first, this can feel uncomfortable for entrepreneurs who are used to focusing on
their external rather than their internal world. But as you get more comfortable exploring those aspects
of yourself that lay dormant for so many years, the journey becomes easier and much more rewarding.
Finding Your True Calling
We help people align (or re-align) with their passion and sense of purpose in life. He refers to this
process of self-exploration as "finding your true calling." He describes a calling as "any urging that
comes from the geographical centre of yourself and tells you what it will take to make your life literally
come true."
Obstacles often get in the way of pursuing callings. I identify the three worst offenders as:
 Societal pressures. Because callings tend to be disruptive, society rarely trains or even
encourages people -- especially those in positions of great responsibility -- to pay attention to
them.
 Self pressures. At the same time, many CEOs feel deeply responsible for the lives of their
employees. Hence, they tend to tune out any inner voices that may distract them from running
the business.
 Ambiguity of callings. Perhaps the toughest challenge of all involves picking out a true
calling from all the "background noise," the fanciful daydreams that seem like callings but have
no real substance to them.
When following a calling,
 Accept that sacrifice is inevitable. All growth requires letting go of something, and callings
are no different. You have to be willing to give up certain things in order to fulfil your passion
and purpose.
 Identify your passions. Passion is one of the primary channels through which callings make
their way into the light of day. It also represents a quick and easy way to get a real sense of
where to find your "real juice" in life.
 Let go of resistance. Rather than fighting your inner resistance, accept it as part of the
process. Enter into a dialogue with the resistance, asking, "Who are you? Where do you come
from? Where have I heard this before?" Recognise that the inner voices of "no" were instilled
in you at a very young age by adult authority figures and that you no longer need to carry them
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 Consult your own death. When you acknowledge and accept your own mortality, you
achieve ultimate clarity.
 Get help. Identify the forces in your life that can help turn "no" into "yes." Make a list of all-
possible resources, mentors and advisors. Include anyone who can help you make the
transition, provide a source of inspiration or has done what you want to do.
 Consider the big picture. In the end, we will all turn to dust. Knowing this can give you the
courage to go ahead and take the plunge.
 Take action. Often, the only way to identify a true calling is to dive right in and see what kind
of results you get. Avoid over-analysing. Just do it!
 Avoid an "all-or-nothing" approach. Following a calling does not mean dropping everything
in your life and taking off on a wild goose chase. Instead, take small steps that gradually
redesign your school of thought and your behaviour. Now make your decision!
But, before you rush off take on board these other points I share with you as follows.
Key factors that influence a successful sale
Misaligned thinking and action at the early stages of considering a sale can account for many failures.
Being determined to address the following four issues will have a major influence on success. These
are:
1. Avoid passivity at all costs
This is a selling issue. It is interesting to note that the best acquirers are often not considering an
acquisition. Buying a company may not be on their agenda. The only way to find such buyers is
through an active search. On the other hand venture capitalists and large PLCs looking to sustain
share values are always on the hunt, but rarely pay a premium. Passive selling will only ever locate
such buyers.
Successfully selling products involves active enquiry generation. Why should selling a business be
any different? At Cavendish, we have developed a database of companies. Using this globally unique
resource we actively contact (on average) two or three hundred prospective buyers just to locate two
to three good ones. There is no short cut.
Additionally, a search should not be restricted to the UK. Overseas buyers seeking access to the UK
will often buy small to medium-sized companies and premiums may well be paid for a strategic
acquisition.
At Cavendish we are dedicated to this early research and identification of potential buyers. With all of
this commitment it still takes us six weeks to complete this element of a project. There are no short
cuts. Failure to find hundreds of good prospects will almost certainly result in 'no sale'. Interestingly,
the more companies you approach the luckier you get! Approaching up to 12 competitors by mail is
virtually certain to fail. So let us help you be successful with the sale of your business.
2. Motives vs. Multiples
If most company owners were to ask their accountants to value their business there is a 90 per cent
chance that the valuation would be related to the historic profitability of the business.
This might surprise you but the value of a business is driven by the motive of the buyer and not
multiples of profit. If you calculate the value of your business using multiples of past profit and then put
that value into the public domain you will be making one of the most expensive mistakes of your life.

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Motives for purchasing a company are diverse. It is a fact that the number one reason behind the
purchase of companies is not short term return on investment but the quality of that company's client
base. This is the greatest reason why anyone buys a company and the greatest reason why a
premium price is ever paid.
The second reason why a company is purchased and a premium price is paid is its potential for future
growth. What could the business look like in three years under new ownership, with new clients and
fresh investment?
These issues have a far greater influence over value than multiples of historic profit.
Let us validate this with what we have come to call the 2.5 rule'.
If you negotiate well with a choice of strategically motivated buyers, then you will almost certainly
receive a diverse range of bids.
At Cavendish we have a unique perspective through the observation of the number of deals that we
have completed. Over many years we have noticed that the difference between the lowest and highest
bids is consistently 2.5. That is the highest offer is 2.5 times more than the lowest offer. We get very
few exceptions to this. It is a great differential between highest and lowest bids.
At Cavendish we approach, on average, many prospective purchasers to sell just one company. It
takes us approximately six months to vet and qualify this list down to no more than five or six. These
prospects will be asked to submit a competitive bid. Bear in mind that we have been negotiating for
many months. They have been thoroughly screened. It is at this advanced stage we consistently find
that the difference between the highest and lowest bid will be 2.5 times.
If valuation was truly rooted in multiples of adjusted profit, then all bids would be relatively similar.
There would never be such a great differential. All buyers would use similar logic, figures and multiples
and the bids would be much closer together.
3. Bidder competition
There is one factor that influences `sale ability` more than any other and that is bidder competition.
Having a choice of buyers, in effect 'creating a market', is the single most important issue that a
vendor can address.
Not only must you find a choice of acquirers, but they must also be strategically motivated and
financially strong. It is essential that this matter is not compromised. Therefore, you will have to
contact many potential acquirers and this will dramatically influence the sale.
Bidder competition influences three things:
The speed of the deal
Where there is competition an acquirer is less likely to become hung up over minor warranty problems
etc. At Cavendish we work closely with lawyers around the UK. This is more important than most
people realise because the more protracted a deal, the disproportionately more likely it is to fail.
The price achieved
Of all the factors that will influence price upwardly, the greatest is 'creating a market of bidders'. Of
course this is true in any negotiation; nobody would argue this point and yet establishing bidder
competition remains the most compromised element of most traditional sales.

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4. Future Potential
We have already said that the number two reason why companies are purchased and why premium
prices are paid is potential for future growth. However, if you were to analyse a traditional prospectus
you will find almost no comment on this most crucial of subjects. The truth is that nobody ever buys a
company's history they only ever buy its future.
When you sell a company you should never sell what a company looked like last year under your
ownership. You should absolutely never sell what a company will look like this year under your
ownership. Neither should you sell what a company will look like in three years under your ownership.
When you sell a company you should only sell what a company will look like in three years under new
ownership.
The 5 main reasons for selling a business may be diverse but they are also the most common
we encounter.
Lifestyle change
Running a successful business requires considerable levels of commitment and responsibility. Rarely,
if ever, is there the opportunity to leave the office at 5pm without a further thought given to the next
day’s workload, operational challenges or the future of the business. After living with the burden of
such responsibility for many years, business owners often yearn for a more relaxed lifestyle with time
and thoughts dedicated to family and leisure pursuits.
Entrepreneur versus manager
Many owners of privately owned companies have a strong entrepreneurial spirit and building a
business, although time consuming and extremely hard work, is also an exciting and dynamic time.
However all businesses inevitably require adherence to policies, procedures and legislation during
day-to-day operations. All this consumes an ever increasing proportion of the day for each business
owner, increasingly pulling them away from the exciting and dynamic environment in the early years of
the growing company. For many owners, the motivating elements of growing and running a business
becomes far less evident.
Time
Building and running a business often requires considerable commitment. It rarely allows business
owners the luxury to take extended breaks away or the care free option of simply working `9 to 5`.
Because of this, whilst business owners develop and expand their businesses, there is little time left
for family and social activities and holidays. For this reason many business owners choose to reap the
rewards of their labour and sell their business, using the proceeds to regain lost time.
Business life cycle
A typical business life cycle sees rapid growth in formative years as each business develops from
‘start up’ status into a small and then medium sized company. Once the business reaches this size it
is often necessary for the business owner to inject a considerable quantity of capital into the business
to maintain the level of previous growth. At this stage many business owners have a stable and
profitable business and feel less inclined to make a major financial commitment in the business which
may take many years to be fully realised. At this point a decision is made to sell the business and
allow a new owner, with greater financial resources and commitment to ensure the continued
expansion of the business.

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An approach
An approach from a potential acquirer can be the catalyst required to change a business owner’s
mindset from running and developing a business to enjoying the often considerable proceeds of a
potential company sale. Approaches are typically made either from an external organisation or from
the internal management team (commonly known as an MBO or Management Buy Out). Many
business owners experiencing such an approach take advantage of the Cavendish Negotiation only
service.
Cavendish utilise there unique and refreshingly different way to sell your business for its
maximum value: the 5 step process.
Step 1: The project brief
We work with you to create a comprehensive `Sell Your Business` brief, thinking laterally and beyond
the obvious.
The brief covers all aspects of your business including:
 Your client base
 Your products and services
 The marketplace
 Financials
 Purchaser profiling
We then appoint a project Director to handle the business sale process.
Step 2: Exhaustive research
The project is now passed to us as the specialists. We identify potential buyers. At this stage it is vital
to look at complimentary buyers (not just competitive) and possibly from overseas, not just from the
UK.
The research stage usually takes 6 weeks and is approved by the seller before implementation.
Step 3: Prospect generation
The project Director now draws on his skills and experience. Our consultants contact, in strictest
confidence, every prospective purchaser. We introduce the initial idea without telling them your
Company name.
The objective is to generate face-to-face meetings with multiple prospective purchasers to create an
atmosphere of competition. Each prospective buyer will be asked to sign a non-disclosure agreement
before proceeding. There are no valuations at this stage. Due to strongly adhere to confidentiality
policies, a breech of confidentiality is virtually unheard of.

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Step 4: Qualification and bidding
The Cavendish Directors will vet and qualify each prospect.
We prepare the client with our 'dry run negotiation meeting' to help them understand:
 What to say and what not to say
 How we will be inviting competitive bids
 How to think benefits
 How to trade, not concede
 How to keep sight of the objective
 When the client should talk and when they should leave it to the negotiator
The Cavendish team facilitates and leads every meeting and takes each prospect through our proven
bidding process.
Step 5: Concluding the deal
We continue to handle the negotiations between buyer and seller and their advisors. We manage the
due diligence process that ensures the buyers know that what they believe they are buying is what
they really are buying.
We ensure the business purchaser knows that the seller still has alternatives, because choice—or
perceived choice—impacts on the speed and price of the business sale.
How much is my company worth?
The million pound question with no simple answer.
The easy response would be to state that your business is worth a standard multiple of earnings or
adjusted profits. However the right answer, that we must face up to, is that your business is worth
what someone is prepared to pay for it.
Motives and not multiples determine value. The issue is more about negotiation than valuation.
Often quoted is a multiple of 5 or 6 times adjusted operating profit (that is operating profit after making
adjustments for the profitability of the company under new ownership and after corporation tax).
The reality is that your company may be worth much less than the above or much more. On average
we find that the difference between the highest bidder and the lowest bidder is 2.5 times. The reason
for this is that they are buying with different motives. A strategic buyer is likely to pay a higher price
than a return on investment buyer.
Your objective must be to put yourself in the best possible negotiating position and that means having
a `choice of buyers`. It also means being well `prepared` for the negotiation.
We wish there was an easy answer to this question but the truth is that there is not one. Any other
advice is seriously flawed and could result in you significantly underselling your business.
Traditional valuation based simply on return on investment makes an assumption that nobody will pay
a premium for your business. This may be true but it is a very premature assumption. However be
careful not to limit your aspirations.

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How long will it take to sell my business?
Another difficult question. Many shareholders never manage to sell their companies, others take many
years. The main reason for this is a `passive` selling process. No enquiry generation means that you
rely on a buyer finding you. Not only can this take many years but leaves you in a poor negotiating
position.
From the brief to received bids is consistently 6 months. The Due Diligence and Legal processes are
more difficult to guarantee.
What do I need to do to prepare for the sale?
Important preparations include:
 The Cavendish checklist - Charting the Take-Over Maze
Within 4 weeks of commencing a new project we will carefully work through our checklist in order to
prepare for the forthcoming negotiations. We will need to collect all the information necessary to
answer the questions that may be raised during the negotiation meetings.
The most important aspect for establishing control of the negotiation is to locate a choice of
prospective purchasers. Following that comes good preparation of documentation.
 The meeting
Prior to the negotiations Cavendish carry out a dry run meeting with you. During this time we will act
as pseudo acquirers, together learning the best tactical approach. The main reason for this meeting is
simple. Most of our clients have little experience in selling companies. On the other hand most
acquirers are experienced in these matters. The playing field needs to be levelled and the dry run
meeting is the ideal tool.
In addition we will need to take early tax advice in order that the lawyers can structure the deal in the
most tax efficient way.
What about lawyers?
Along with your accountant, your lawyer needs to play a key role in your plans to sell your business,
and in drawing up the legal documents that will carry out those plans. We can introduce you to skilled
and experienced lawyers.
It may be that the lawyers that you use for general commercial activities are not experienced in the
mergers and acquisitions field. If this is true then we need to find another practice.
It may also be worth considering that your present lawyer has a built-in incentive to dislike any deal
you may propose: if you sell your business, he or she will probably lose a client! Consequently,
whether they realise it or not, some lawyers who represent small businesses may tend to "pick apart"
a deal by finding so many roadblocks that your deal falls to pieces, or continues on so long that the
other party loses interest. Also, this becomes a very costly issue for you.
It is also true to say that it is unlikely to be necessary that you need to employ a big city practice
whose fees can be exorbitant. There are a good number of experienced regional practices that will do
an excellent job.
What about tax advice?
If you have used an accountant regularly to prepare your tax returns and draw up financial statements,
he or she will be very well acquainted with the financial shape of your business. This knowledge may
be helpful during the due diligence process.

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Your accountant will also be essential in drawing up the historical and projected financial statements
and other data required to place a benchmark value on your business, and in gathering and organising
financial data that will be requested by the buyer during the due diligence phase of negotiations.
If you haven't been in the habit of getting audited financial statements, we strongly suggest
that you do so now.
It is absolutely essential that at least one of the members of your team be an expert in dealing with the
tax aspects of business sales and acquisitions. This person may be your accountant, your lawyer, or
you may also decide to hire a specialist solely for this purpose.
Depending on how the deal is structured by the lawyers, you may face an enormous tax bill upon the
sale of your business, or next to none. There are a lot of opportunities to save money here.
Taking advantage of tax-saving opportunities requires planning in advance of signing the sales
documents. We suggest that you start talking to such an adviser 4 months before a deal is expected.
What size and type of company does Cavendish help?
Most Cavendish company disposal clients are small to medium sized businesses. Clients have a
turnover from £1million to £30million.
You might be interested to know what characteristics are likely to make a company more attractive to
a buyer:
 An enviable client base without vulnerability to any single customer
 Strong potential for growth
 Scarcity
 Cash generative abilities (rare)
 High Awareness / reputation
 Guaranteed income streams via service agreements etc
 A strong forward order book
Items to be avoided include:
 Serious unresolved litigation
 Major financial debts
 Skeletons in the cupboard
 Minority shareholder problems
What is Due Diligence?
Usually, after a buyer signs a letter of intent to purchase a business and the seller accepts the letter,
the buyer will have a specified period of time in which to conduct a due diligence investigation of the
seller and the company. During this period, your buyer should have access to your financial and other
records, facilities, etc., to investigate before finalising the deal.

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Cavendish will have assisted you in the preparation of documentation so by now you should have
collected and examined most of the information the buyer wants. The vast majority of it is in the form
of documents in hard and electronic copy. The buyer will want to see copies of all leases, contracts,
and loan agreements in addition to financial records and statements. He or she will want to see any
management accounts/reports you use, such as sales reports, inventory records, detailed lists of
assets, facility maintenance records, aged receivables and payables reports, employee organisation
charts, payroll and benefits records, customer records, and marketing materials. The buyer will want to
know about any pending litigation, tax audits, or insurance disputes.
Buyers will also look at the environment your business operates in, including the size and makeup of
your market, your principal suppliers and customers, your competition, and your industry. They may
ask you for more and more information until you feel overwhelmed! We suggest that you respond
patiently, and cooperate as much as you reasonably can. Just keep your mind on the goal - `selling
your company` at a price and terms you can live with - and you will get through this potentially very
trying period.
Your own due diligence with our document `Charting the Take-Over Maze` will help in this process...
You should also do some serious investigating of your own. You will want to find out the buyer's credit
record, management experience, reputation, and the plans he or she has for your company's future
operation. This is particularly true if you plan to continue an employment or consulting arrangement
with the buyer after the sale. We can carry out this exercise on your behalf.
What is the Business Purchase Agreement?
The purchase agreement for your business is one of the most important legal documents you will ever
sign. After all, many years of hard work will culminate in this single transaction. You do not want to
have issues (problems) collecting the money due you or to have legal problems haunting you into the
future, and a carefully constructed purchase agreement can be your best insurance policy for
preventing such catastrophes.
Customarily, the buyer's lawyer provides the initial draft of the purchase agreement for a business.
This makes sense, since the buyer has to live and work with the company while you will walk away
into the sunset with the cash (theoretically, at least). However, we suggest that your lawyer should
draft the sections that are most important to you. In most cases, that means the clauses containing
representations and warranties about the business. Ideally, you should try to avoid or limit the making
of any warranties or guarantees for which you can be held legally accountable. You may also
negotiate closely with the buyer as to which liabilities he or she is assuming, and which will remain
with you.
Here's where a good lawyer can pay dividends. Make sure that you maintain on-going liability
insurance for any liabilities that will remain with you - for example, product liability insurance on
products that were sold during your tenure as owner.
Indemnity provisions, in which you promise that you will reimburse the buyer for certain types of
expenses if they occur, are often a hotly disputed area of the contract.
The purchase agreement is likely to be a lengthy, complicated document. For some of the more
elaborate deals, the contract plus attachments can run into hundreds of pages. You should go through
it carefully with your lawyer and make sure that you understand the implications of whatever is in
there.
Once both parties have agreed on the language of the purchase agreement, it will be signed by both
parties. The contract will state the date at which the final transfer of ownership and possession of the
business will occur, and when the seller will get the money. With a signed purchase agreement in
hand, the buyer can finalise any financing arrangements with outside lenders in anticipation of the
closing.

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Added Value solutions
 `Valuer`- Business Valuation Software and complete guide to improve your business
 `Charting the Take-Over Maze - Successful Acquisitions` publication
 www.cavendish-mr.org for comprehensive details.
Vision of Colin Thompson:
 Changing Limited People into Limitless People and
 Turning Limited Companies into Limitless Companies.
DDL: + 44 (0) 121 244 0306
Mobile: 07831 588310
Main T: + 44 (0) 121 244 1802
email: colin@cavendish-mr.org
www.cavendish-mr.org

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