Kingsbrook’s four golden rules to selling your business

Transcript:

You know, at Kingsbrook we live by four golden rules, four absolutes. If you compromise just one of these four things, then you’ll probably never sell your company. If you do, it’s highly likely to be at a very poor price. Ignoring these things is highly expensive, and yet these four things are consistently neglected in our industry and are the reason why so few advisers achieve good results.

Some of these things are a little bit contrarian, so please feel free to disagree with us. We won’t be offended. But if you are thinking of working with us, then you need to know what drives us and what we believe is absolutely non-negotiable.

So here we go. Number one. It’s called selling for a reason.

Most companies are bought; very, very few are sold. Now, we employ some financial wizards at Kingsbrook. They’re brilliant at what they do. But let me tell you something: selling a business is not a financial issue.

The fact that there are tax issues, valuation and lots of numbers involved means that sellers assume this is a financial problem. It is not. It is a sales and marketing issue first and foremost. As I say, we employ some financial wizards, but this starts as a sales and marketing issue.

You have to be proactive. You have to go out there and find your buyer. The best buyers don’t come looking for you. In over 80% of all of our deals over many years, the buyer, when first approached, was not looking to buy. 80%. They were not considering an acquisition.

Most companies fail to sell because they don’t make it their primary goal to go out there and find the buyers. Finding a buyer that isn’t considering buying requires considerable effort. It’s this ability to generate a market that sets Kingsbrook and the BCMS family of companies apart.

Number two: you must look far and wide for a buyer.

The best buyers are probably not your competitors, yet few sellers ever look beyond their competitors. Competitors rarely pay premium prices except under rare circumstances.

Your buyer is unlikely to be an investor or a venture capitalist. The best buyers are complementary in nature. That means they’re likely to be selling complementary products and services to yours rather than competing products and services. They’re very likely to be selling those products and services to similar customers to your own. Their clients will be similar in nature, although different in name, to your own clients.

The buyer may well not be in this country. It’s very important for some companies that you look well outside the shores of the UK for a purchaser. Overseas buyers pay premium prices to get a foothold into a new market, and overseas buyers will influence the bids of local buyers who will want to protect their home market from international intrusion.

The buyer may well be outside your sector.

Here are a few interesting stats for you. 45% of our clients were shocked at the nature of the purchaser: “We never expected to sell to somebody like that.” 65% of our clients had never heard of their purchaser and did not know they existed.

It is essential that you look beyond the obvious for your buyer, and Kingsbrook excels in this area.

Number three: when you sell a company, you sell its future opportunity. You do not sell its past performance. You sell what the company will look like under new ownership going forwards, not what it used to look like under past ownership going backwards.

If your buyer cannot grow your business faster and further than you, then you have the wrong buyer. They should have far greater resources and finances than you. They should have new markets they can open up and opportunities that they can grow into.

You sell what the business will look like with their resources applied, not what it used to look like with your resources applied to growth.

We don’t have the time to unpack this right now, but over many, many years we have been proven right time and time again.

Here’s the problem. Traditional valuation methods focus almost entirely on past performance, and yet buyers only buy future opportunity.

You do not sell what the company looked like last year under your ownership. You only sell what it will look like going forwards two to three years under their ownership, with their very different resources applied to growth.

This is why one buyer will be prepared to pay a very different price to another, because one buyer can do far more with the business than another can.

After talking to many, many buyers identified by our research team, we typically end up with three to four companies bidding for our clients. The bids vary from each other by an average of 2.5 times. That means one buyer is prepared to pay more than twice what another is prepared to pay.

This is why you can’t value a company, because it’s influenced by what the buyer can do with the business.

Let me give you one of our golden rules: never, ever go to market with a value attached. If you do, it will probably be the most expensive mistake you ever make, unless you’ve made a few other howlers – and we’ve all made a few of those, haven’t we? They’re the domain of the entrepreneur. But trust me, this will most likely be the worst of them.

Number four. The number one issue when selling a company is to establish a competitive environment.

Almost everything that we do at Kingsbrook relates to this. Nothing, but nothing, is more important. No choice is the most expensive mistake, and yet establishing choice is so overlooked in our industry.

Having a competitive environment profoundly impacts three things: the price that you secure, the speed of the deal and the terms of the deal. It is the single most critical issue you will ever address when selling a company.

Going back to point number three, it is naive to expect a buyer to pay for future potential unless you have choice. Competition is the only thing that ensures a buyer will consider the future.

None of this really works without competition, and that’s why nothing is more important when selling a company than establishing choice.

Well, those are the four golden rules that drive everything we do at Kingsbrook. Those are the four things that drive our success in selling companies.

If you’d like to talk to one of our experienced team members, then do feel free to call us or email us at [info@kingsbrook.co.uk](mailto:info@kingsbrook.co.uk).

If you want to read more about our contrarian views on company valuation, then go to [www.kingsbrook.co.uk](http://www.kingsbrook.co.uk) and you can download a free booklet on the subject. I’m sure its pages will surprise you.

However you go about selling a company in the future, I really do wish you great success.