Selling Your Business Via Trade Sale – Smart or Not?
Selling Your Business Via Trade Sale – Smart or Not?
Selling your business is typically a tough decision to make and more often than not, not a stress-free decision process. There are many factors going into how and why you’re selling your business. One of those options on how to sell your business is to do so via a trade sale. A trade sale is basically an exit strategy for you to either focus on other ventures or simply have a lesser role in the company. Often it means selling it to another business. You have the option to either sell your entire business or certain parts via shares or assets. You might be interested in: Business Asset Disposal Relief – Formerly Entrepreneurs Relief.
The benefits of a trade sale include that you still have the opportunity to stay engaged in your company, however as a consultant role. It also allows you to focus on growing and scaling the business, by finding a bigger business to take it to new levels. Obviously, it also allows you to completely step away from the everyday aspects of business ownership, and simply let the new buyer take over.
When looking for a buyer via a trade sale, the buyers fall into two categories: a strategic buyer, and a financial buyer. There are benefits and challenges to both of these options, so let’s explore those.
To help during any sale process you need experienced accountants on your team which is where FD Capital can help, we have a team of experienced FDs and CFOs with backgrounds in M&A activity available often immediately, make sure to reach out to our team today to discuss your requirements.
Strategic Buyers
Strategic buyers choose to purchase your business due to strategy, as the name indicates. Strategic buyers often see the potential of how acquiring your business can support their own, offer more value to their existing clients, or even help expand theirs. They are looking for collaborations, and yours happens to fit the bill.
Benefits for Strategic Buyers
Strategic buyers are often familiar with your industry or field and may be a part of it already. They know what challenges to expect and how to deal with them, but they also understand the potential when they run the business correctly. By integrating another business in a field that they have acquired knowledge, it allows for them to grow and scale their own business and maximize on success and financial gain.
Each business comes with its own existing network, and support system. Maybe this strategic buyer would like to have access to the specific manufacturers you use, or you have existing clients that they have been trying to acquire unsuccessfully so far – by participating in a trade sale, these strategic buyers gain instant access to these critical components and people that could propel their own business forward.
Another benefit for strategic buyers is if they are interested in receiving the rights to the designs of your products, or any kind of patents your business may have obtained over the years. These are immediately transferred to the new strategic buyer, which can be considered a huge win for them.
Why You Want to Work With a Strategic Buyer
Those were the benefits from a strategic buyer’s point of view, but what are the benefits for you?
Often when working with a strategic buyer, you may receive a higher offer. Strategic buyers see the potential, and are purchasing your business as leverage to achieve higher aims; and are therefore more likely to offer you a better price. Many strategic buyers also offer former business owners the flexibility to stay on in a different role or to choose to leave the business completely.
Since a strategic buyer is often familiar with the industry, it can make for a smoother transition and less disruption for your existing clients. It also may be able to speed up the selling process, and should you retain shares of your business, then it may benefit you as well as they are likely to be able to bring your business to heights it didn’t reach previously.
Potential Cons
The challenges of working with a strategic buyer aren’t insignificant and should be considered before proceeding with the trade sale. Sales do fall through. It’s a misconception that all deals go effortlessly, and it can be quite helpful to have a plan B. Having the deal fall through can mean that your competitor knows the ins and outs of your business and can use those for their own gain, including the awareness of your weaknesses.
A much simpler con is of course your clients not liking the new buyer. This can lead to frustration, your reputation going down the drain, and them choosing to purchase elsewhere. Should you own shares, this is obviously not ideal and needs to be considered whilst selling your business.
Financial Buyer
A financial buyer is someone who simply has the financial means to acquire a large amount of assets in a short period of time and is looking to accumulate wealth through these assets. They may be viewing your business as a vehicle to re-sell at a later time for a profit. Typically, unlike strategic buyers, financial buyers may have no industry-specific experience or even any kind of business experience at all.
This buyer doesn’t typically care too much about what kind of business they purchase, as long as they see the potential for future financial gain.
Benefits of Working With a Financial Buyer
Many of the challenges of working with a strategic buyer are a non-issue with financial buyers. Financial buyers often require you to stay on in a significant role, as they themselves have little to no experience in running a business. This of course allows for continuity and consistency for your clients and employees.
Additionally, there may be some financial perks to working with a financial buyer, because they often can offer more flexibility with the financial arrangements than a strategic buyer may be able to.
Cons of Working With a Financial Buyer
A Financial buyer has little experience in your industry so if you’re looking to step out of your business, then this is not your ideal choice. At the same time their inexperience can delay the whole selling process, but you also don’t have to be concerned with your designs or business secrets being used by a competitor should they decide against the deal at the last minute.
Working With a CFO whilst selling your business.
It’s helpful to have a CFO to support you during this process. A part-time CFO will be able to help you adjust to your new role in the business once it’s been sold and you staying on. At the same time, they can help with the financial transactions and having all of the information at the ready for your potential buyer when it comes to the actual sale. When looking for a part-time CFO, consider using FD Capital to recruit the correct person for your specific needs in this transitionary time period.
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Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
