Shareholder dependence appears to be the biggest hurdle when selling a business, according to a survey by Clifton Finance. For 20 years we have been assisting entrepreneurs with the sale of their business. In the vast majority of cases this has resulted in a successful transaction. In recent years, many entrepreneurs were reluctant to initiate the process of selling. The economy is now booming again. For many entrepreneurs, this is a reason to look for a buyer for their business. What could still stand in the way of a successful sale?
Clifton Finance survey
Entrepreneurs were able to complete an online questionnaire through our website to determine if their business is ready to sell. Based on the answers completed by entrepreneurs, it appears that a sale is still hindered by a number of factors. Remarkably, these factors are similar for a large portion of the respondents.
At the top of the list is the company’s dependence on the (director) shareholder. Over 90% (!) of the entrepreneurs indicated that they are actively involved in operational matters in the company on a daily basis. Furthermore, they indicated that they are actively involved in dealing with important relations of the company. This means that a director-shareholder cannot simply close the door behind them after a sale. This could jeopardize the continuity of the company. Over 90% is, of course, a number that at least shows self-awareness. However, a solution must be found to get the company ready for sale.
Nearly 20% of the respondents indicated that their company’s turnover and results fluctuate greatly each year or even decline. Also not a fact that makes buyers happy. Especially for getting a good price without nasty after-payment arrangements, some stability-and of course preferably growth-in sales and results is desirable.
Finally, almost 20% of respondents also indicated that their business has been in existence for less than 5 years. In practice, many buyers are looking for a somewhat longer track record. For these companies, it is probably advisable to view the sale on a somewhat longer time frame.
Positive news
There is also positive news, of course. No less than 80% of the respondents feel that they have a good understanding of the company’s key control variables. For example, in the form of a weekly or monthly management report.
Shareholder dependence is a concern. While there is much less dependence on, for example, suppliers or (scarce) raw materials. Only 6% of the respondents saw limitations here and liquidity is also fine, judging by the answers given: over 65% of the respondents have the financing of the company for the coming period well arranged and at almost no company is financing still a real obstacle. The window at the banks is clearly open again!
Remove barriers to a sale
Shareholder dependency is not solved overnight. In a company where this is an issue, there are roughly two paths to a successful sale.
If there is still enough time, the obvious way is to reduce the dependency. The key word here, in our view, is letting go. Transferring knowledge and responsibilities should be done in phases and without jeopardizing the company’s results. This transfer can be through a more coaching role of the current ( director) shareholder to let the key people in the company grow to a more responsible position. Or to attract new employees who can eventually take over (part of) the tasks of the current shareholder. If a Supervisory Board is active at the company, it can play an important role in this transition. If there is no Supervisory Board, an external advisor or coach, for example, can support the shareholder in this process.
The sale may be imminent, leaving little time available. It is then important to find a buyer who can fill the role of director himself. For example, an industry peer who can take over as director after the takeover or a management buy-in candidate with relevant experience and a network in the market. It is important to find the right candidate buyer, which is not always easy.
Would you like to talk to us about the sales opportunities of your company or preparing your company for sale?
Please call Clifton Finance: Gonneke van der Lee +31 6 52466518 or Maarten Vijverberg +31 6 55853074.
By: Maarten Vijverberg