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FAMILY BUSINESS ADVICE: Is Now A Good Time To Sell Your Family Business?

Viktoria Islamic to be speaking to you

lovely to see you again well thank you

great and and we're gonna be talking

today about is now a good time to sell

your family business that's right yeah

so you know in the community of over

three million family businesses in the

UK there will be lots of people who are

thinking about their exit who have been

thinking about their exit for the last

couple of years and perhaps this has as

I know sped up the process a little bit

of their thinking or perhaps they're

thinking I was going to do it in 2020

but now I'm just not sure if that's just

an absolutely terrible really stupid

idea so you know this is what you guys

do you you help owners sell their

businesses and I thought it'll be really

insightful to be able to pick your

brains and for anyone who's thinking

about ok where I need to exit my

business at some stage is now a good

time should I be holding on etc so are

you okay for me to pick your brains

absolutely more than happy pick away

okay so the first and most obvious

question is now a really stupid time for

thinking about selling your business

it's never a stupid time to be thinking

about it it's a question of when you

won't press the button to do it but

always have that that succession plan

possibly that the exit plan in mind

because you don't know what's just

around the corner and I think it was

it's your family business conference

last year actually someone said run your

businesses so you're going to sell it

but then once you get to a sell process

run s as though you're not selling it is

a weird dichotomy in terms of the

attitude and mindset one has to have but

you should always have that question in

mind is now a good time is the business

in good shape is this the right thing

for me for the business for the

employees for my family there are so

many different factors at play and yet

of course it's worth asking that

question the answer will be different

for everybody depending on the answers

to those that there's very personal

person indigents in terms of the M&A

environment at the moment there are

still things happening and activity is

picking up out there at the moment yes

everything's have dropped off a bit of a

cliff at the back end of March and

through April as

we all of us were spinning plates and

trying to get our heads into a very

different space in terms of trying to

furlough staff or keep things going

wandering off the earth was going to

happen to all our revenues our customers

everything like that now things have

settled down somewhat some sectors are

more adversely affected than others but

there is more happening out there there

is activity starting to pick up more

people are starting to ask that question

okay what's the opportunity that I can

see is coming out of this so that it's

not all unfortunately that there will be

some casualty

it's in terms of businesses that don't

survive the hardships that COBIT has

brought on but there are others where

there will be significant opportunity

coming out of this and it's right that

owner managers family business owners

should be thinking about what might the

next steps be okay so that's a lot to

think about in itself actually so if you

throw into the mix then I had a very

healthy family business before kovat and

we've been seeking along quite nicely

maybe even making you know profits going

up year-on-year

all of a sudden come March 2020 my

business has just become a shell of its

former self and it feels like there's

there's no value in that whatsoever so

what your thoughts on that I'm again

that's something that every business

needs to work through in terms of what

does that recovery program look like is

that going to be a bit of a V curve

where things will pick up again very

quickly is it gonna be a longer slower

process what visibility do you have now

on that slow process through to recovery

to back where you were before and then

built continuing to build on the

historic performance and so on and then

starting to build up again for everyone

it'll be a question of working through

that and understanding what's that

recovery looks like that there have been

some pundits talking about sort of

multiples based on valuations based on a

bit DAC rather than a bit doughy

earnings before interest tax

depreciation amortization and kovat I

don't think we're gonna see that per se

but everyone look

at projections as a management

information for this year projections

for the forward year you need to look at

accounting quite specifically for the

for the coded impact and things that

have happened like it why did things

drop off and can we quantify that

because this year one homes will be a

bit of an anomaly do you know to mean

and then things can pick up quite what

sort of normal we will get back to I

don't think anyone's quite clear just

yet but we will get back to something

where the economy is running people's

needs and requirements that their their

purchases are going to come back to some

sort of shape of what they were before

and it's a question of for businesses

being agile enough to understand and

look forward to what might that mean or

look like on a more prolonged basis and

therefore does the business model need

to evolve to keep pace with that to

match changes in consumer habits or

other buying habits from from your

previous client base or can you tap into

a different client or customer base

based on this this new world and and how

things are going to look going forward

that onto that to an extent yeah and you

touched on projections now in a normal

world and it was quite easy to project

because you could base it on the last

two three years and you can see that

things are picking up how do you project

when there's so much uncertainty around

how consumers and businesses are going

to start buying again it's a very good

question and it's not easily answered

there's no quick fix to how long can

projects the next six months 12 months

18 months and every business will be

different and it's making sure that one

can identify quite clearly what are the

assumptions that you're making as you

make those projections so what are your

assumptions about revenues coming back

in and then your your costs coming in to

under that have you furloughed staff are

you bringing them back how does your

working capital cycle start to build up

again and you have cash flow support for

that

for instance people who've got CID

confidential invoice discounting

facilities those are all well and good

when you've got a nice healthy debtor

book that's being generated by

continuous sales where sales have

dropped off your debtor book has dropped

away that cashflow facility will have

diminished right down if you don't have

that already in place because as your

sales pick up the availability of that

facility will pick up again if you don't

already have something like that in

place then it's going to be very hard to

get because you're trying to get a

facility off the back of very reduced

sales but as you go forward it's it's

important to identify the assumptions

that are going to be behind those

forecasts so there's if you're looking

for support anyone can test those and

sensitize them you can look at what's

your worst case scenario and build up

from there because then you can layer on

the positives all the time knowing what

you've got to safeguard and keep as a

baseline and to build up from so if you

if you know that realistically the next

12 months you're never going to be back

at your fighting weight as a business

but you still think okay I want to sell

my business in the next 12-18 months

what realistically can you expect from

potential buyers and what sort of things

are they going to interrogate about your

business now buyers are always going to

want to try to look at the lowest case

scenario because of course they want the

best deal they can get historically we

see or we have seen buyers who tried to

take an average of the last three years

results especially for a growing

business they don't want to pay forward

on upside that's yet to be realized and

how much faith can they put in that

continued growth if it's a projection

especially if you've got quite big jumps

in growth and profitability and this is

where we are today and you're projecting

that for next year well they're going to

want to put something on today's results

of proven results rather than on the

future and a lot of buyers will say well

hang on let's take an average of the

last three years apply multiple to that

a few adjustments here and there and so

on

that doesn't mean that they won't

suddenly say well actually this year

results are down on the last three years

because of it therefore we want to give

you a multiple just based on this any

scrupulous buyer and let's face it when

we're talking about buying and selling

businesses a big part of it is trying to

match up the right buyer for the right

seller so there's a meeting of minds

we're talking about continuity for a

business an appreciation for not just

the assets that are there but the

goodwill the ethos is that family

business that's been built up over many

years across many generations if you

find that right buyer they are still

going to be looking to give you proper

value for it

what I do expect to change is some of

the structures for acquisitions in terms

of payment structures so they'll say ok

you're saying that next year it's going

to recover to this level again or

possibly even higher than what your

first projecting for this year I'll pay

you this amount now but the rest of its

going to be an element of deferred or

earn out consideration on the top if you

want that full value a lot of buyers

will try that anyway these days it's

fairly rare to get a hundred percent of

your cash on day one and it does happen

but it's it's not all the time because

the buyers do want to see what they're

getting makes the value is intrinsically

there and especially if there is upside

they want to see that starting to come

through before they pay for it so I

would expect to see more people say well

actually we'll pay you're over a longer

period of time just to see whether this

real value means that you say is there

it's going to come back okay so a couple

of things that are there still buyers

out there buying businesses at the

moment that there are there are still

transactions going through now some of

those are left over from pre lockdown

that have taken a while to go through

and are happening I think there are a

few er that have been originated in the

last couple of months but there's much

more noise now around people saying well

actually we know that there are going to

be opportunities and we're going to

start actively looking for those

opportunities to buy them coming out the

other side I do have locked down we know

that other businesses in our sector may

be struggling we know that some people

are just going to want

get out they've had enough they don't

want to weather another storm and so

acquirers will be putting themselves on

a sound footing to make their moves and

to start to look for things okay so

putting you on the spot here a little

bit but are there maybe three or four

things that look really attractive as a

business right now so if I'm a family

business out there watching this video

and you say to me actually you can make

sure you take these three boxes you're

in at you and it's a good starting place

so there are three common denominator

that make a really attractive business

at the moment gosh three um

the sector that you're in will have a

lot to do with it right now and of

course that's something you can't

control you constantly change what

sector you're in so that's a slightly

unfair one to say in some respects but

there are some respect sorry some

sectors that have weathered this fairly

well have continued to be resilient

certain manufacturing health care

pharmaceuticals tech businesses they've

done really well through all this

because they've been less impacted other

businesses obviously anything in the

hospitality leisure retail have really

really suffered so they're gonna

struggle more to look attractive in this

environment anyway and it's possible

that some of the acquirers out there and

not gonna be quite so active in those

spaces at the moment unless they were

really sound and just waiting for the

right moment to grow and really push

forward with an acquisition strategy

anyway but having really clear

management accounts information it's

going to be important so that's up to

date really clear records of what's

happened map the impact of Ko bid really

really clearly and in terms of your

expectations for the next 6 12 months

projecting those carefully and having a

really clear cash flow projection to

monitor that cash flow over the next

little while and show how how stable how

safe that's going to be though those are

two things that those management

information in and cash flow going

forward and then

slightly more esoteric I suppose in some

respects is the mindset of an owner

manager if you've just decided that you

want out then you can start taking more

proactive steps to to deliver that and

in the more preparation you you can do

for the at the better and I think we may

may well see quite a spate of businesses

coming to the market later in the year

as people do make these decisions and

some people might be hanging back at the

moment not quite sure whether the time

is right or not ask the questions of

people around you you don't have to be

an island as an owner manager give me

you're not there on your own although it

can feel like that at times but if

you've got advisors around you you can

use as a sounding board and say I'm not

sure about this I'm not sure about that

I've got staff on furlough at the moment

some of my revenues are coming back but

not all of them yet key contracts I know

went beyond board until X date we're all

still looking into a crystal balls like

at the moment and wondering what the

hell's going to come out of this I think

a lot of people are still viewing

September's being a bit of a crunch time

when hopefully the children will go back

to school and that will help more of the

workforce come back more things pick up

etc but you don't have to be in Ireland

for wondering whether this is the right

thing to do and asking and finds is

about what steps should I be taking to

make sure that if I go and sell my

business it stands above the rest in

terms of how it can be perceived by a

buyer and starting to take those steps

that's really important because once

you're in that mindset is it as a as a

seller as known and managers that

there's a family business owner it makes

the whole process more straightforward

down the line if you're actively looking

to say well okay I'm gonna make this the

best I can possibly be

or best it can possibly be and of course

over the years anyone will do that with

their business anyway so there's a huge

amount of pride and joy that goes into

making those businesses and growing from

not

lot when it comes to selling there's a

shift in mindset that's very hard to to

do but if you can do it it can make

things a lot easier because the emotions

can be quite different if you can shift

from being an owner to sort okay how do

I perceive my business from the

perspective an out of an investor so

this is an asset that I'm looking to

realize then it it can shift how you

perceive different things within the

business it's always going to be

personal generous mean a process such as

a sale but if you can take some of the

emotion out of it that then that can

help that pro parent free phase and

actually making it look good to someone

on the other side of the fence actually

that's very good point because I think

if you can step back and look from it as

an outsider as a potential buyer even if

you're not thinking about selling it in

the next 12-18 months that's a really

good strategy for actually you know

shoring up your business anyway okay so

what's our finance is it like what does

our marketing look like how we got our

recurring contracts you know zipped up

and have we got people bought in and all

of those things that investors are going

to look for or buyers are going to look

for actually make really good sound to

advice for a business moving forward

coming through this anyway it's really

gonna take these guys to undertake so so

if I can ask you them what what are the

main things people should be looking at

obviously they're their accounting which

I think we've all become acutely aware

of our finances the to the nearest penny

these days and you think it's a really

clear management accounts yes

around brand and marketing and

reputation definitely and I think that's

one of those things that that's really

come to the fore also been been

highlighted even more over the last few

months as well is the reputation aside

of how different businesses and

different people have dealt with this

crisis now that's something that can't

be changed necessary now but in terms of

how do you want your brand to be becae

perceived how what are you done to raise

the profile of that historically is that

still relevant does it need updating for

this business this newer or this new

normal

have the values in the brand change the

tools they need to be updated then yes

to all of those things can help with the

own identity of the business because a

buyer is going to want to see that a

business has or what is the identity of

that business and is it going to gel

well with what I've already got is it

going to fit in well to my culture my

structure and it goes back to trying to

find the right pairing for a buyer and

seller not just someone he'll pay the

highest price yeah okay and so perhaps

something else people might look at is

your data so we all hold data when our

customers our clients on some flyers and

a lot of people will still have that on

a spreadsheet or some sort of CRM and

it's a really good chance to get all of

that in shipshape condition isn't it

definitely I mean any sort of

housekeeping that you do around your

employees around your branding your

contracts your customer database all of

that sort of thing is really invaluable

time spent at the moment especially if

you are looking towards a sale in the

not-too-distant future because the more

that one has in good order now the

easier that process is down the line

because of course any buyers want going

to want to scrutinize all of that stuff

and make sure that it's in good order

okay so if I'm thinking right now

yeah I'd you know I've seen my business

through this and I'm like I don't want

to do this again and I think I've got a

good business to sell do I need to wait

another 12 months so I need another

cycle on my accounts or can I start the

conversation now start the conversation

now one of the big things that we do

with any client is talk about timings

and timings will be different for every

month there are still I mean let's say

these days because the world of remote

working and and so on has broken down

some of the some of the old barriers in

terms of timing as to when to launch a

business for sale but that there are

still certain times of year that that

are better than others don't launch

business for sale in December for

instance you know I mean half your

audience isn't gonna be there same in

July and August really but it's always a

question of sorting out timing

understanding what a client wants and

depending on what the clients

expectations are in terms of value and

whether they say well actually I'm going

to hold out for a bit longer because I

want a larger check on completion and

less to be contingent so I'll stick it

out to try and bolster that day one

consideration or actually I just want to

be at the front of the queue for buyers

to look at this I I've had enough I need

to step back for whatever reasons we're

health reasons what have you and

therefore I am prepared to accept that

there might be a lesser check on day one

a more drawn out payment period that

might be outside of my control but I'm

happy with that I can base my

expectations around that okay all right

so the subject of selling the family

jewels is it's a really difficult one

for anyone who runs a family business

whether it's you know tenth generation

or whether you started it with your wife

and it's been your blood sweat and tears

the last 20 years it's a difficult

conversation to have in your own mind

alone with the outside world and you

will have employees who are already

terrified of losing their jobs they're

already a little bit shaky thinking you

know am I am I going to see this through

so I think a lot of people will feel and

quite rightly a bit nervous about bit

anxious about even having that

conversation about setting the family

business but there are plenty places you

go like you guys at castle corporate

finance where you can just go and have a

chat with someone like you to say okay

this is my business this is what it

looks like is it something worth selling

and how do I even get started exactly

that and it's all about starting the

conversation and we're quite an open and

friendly Bunch so we don't we know that

it's a hugely emotive topic that there's

no black and white answer you know I

mean it's not a question of red or black

do or die

there are so many different factors

involved and it's just it's it's

starting that conversation and

understanding a bit more about what's

involved in it in the process what do

you need to get prepared for and what

can you expect at the other end of it

and with our experience we can talk you

through what we're seeing in the market

expectations on valuation

where there might be holes in the

information that could have a negative

impact but I also identify he all over

the key value drivers for your

particular business that will drive up

interest and he is in a sector where

we're seeing activity at the moment all

these sorts of things doing no buyers in

the market do we know people who are

backing buyers in this space until you

have that start having that conversation

understanding the breadth of options and

opportunity that might be out there is

very hard to get a handle on yeah

absolutely

okay so going forward then for anyone

watching this video who's thinking this

might be an option for me either now or

later down the line the thing is to get

your house in order

so to use this down time to sort out

your housekeeping your data your

marketing your accounts all of those

things that you want to have a handle on

anyway as you relaunch and restart your

business in the new world and it's to go

and have a chat with your advisers take

those first steps in preparing a

business and getting it into shipshape

and know that it's okay just to have a

conversation about it and I think a lot

of people don't think about is the

family business perhaps it's just a

vehicle for that family as wealth you

know it's just it's just it's just a

platform using at the moment and sailing

the family business may be the right

thing so you can go and do something

else together you might start another

family piss together you might become

investors you you might be able to

provide full of your children and the

family business is just a vehicle and

and I don't think all that guilt needs

to be you know callously selling the

family jewels you're so right and that's

exactly the kind of mindset that one one

needs to have but it is very difficult

to have that it's really hard and if you

have a conversation that doesn't mean

that you're starting down that route

that doesn't mean that you're at the top

of the ski sloping you can't stop do you

know ii mean it's just about exploring

what are the options and is now the

right time to start to explore those

okay lovely so um if anyone's have a

chat with you they're more than welcome

to give you guys a call yeah of course

thank you so much for your time that's

really useful because there's business

owners typically family business owners

we would have been thinking about all

sorts

things over the last 1012 weeks every

option would have gone through our mind

and one minute we we love our business

another minute we like anymore someone

so absolutely you were able to explore

all options really with with good

trusted advisors that can help you

absolutely and I mean certainly anyone

who speaks to us we have we have lots of

conversations with people who are

they're not ready to sell and they might

not be ready for six months 12 months to

3 years

we try and keep in touch with people

gradually over time build up that that

trust that level of communication so

that if or when they decide that okay

yes this is where we do want to go we

already have an intrinsic understanding

of not only their business but them as

individuals what are they trying to

achieve what do they want out of this

ultimately and it's a really important

step to start to build up that

communication and and just see what

their might be at the end of the tunnel

as you say that it's not a question of

okay well if I sell the business I've

got nothing left now you've got an

opportunity to do something else and

it's all about perceiving what's the

opportunity here and now and is it the

right time to see these that thank you

so much for your time Victoria pleasure

lovely Spiti thank you