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Optimum Professional Services are delighted to launch the new monthly conversational series, “Optimum: LIVE!” which will provide the opportunity for you to hear from members of the Optimum team and special guests each month as they delve into a variety of subjects in light-hearted, fire-side chat style productions.
Each episode will be shot or broadcast live (yep! One take!) which means that it is not scripted or edited and has a more natural and engaging tone.
This is a https://www.visual-pr.co.uk production
00:00:54:00 - 00:01:18:13
Chris
Welcome back to Optimum Live episode 20 this time. And this one is things to consider before selling a business. Whether it's because you want to retire, start a new venture, relocate. Doesn't matter the reasons. But we're going to look at what you need to think about before you sell it. How long you need to give it before you start doing it, and make sure you understand every step that is needed.
00:01:18:13 - 00:01:58:23
Chris
This is a bumper episode, really useful even if you're not ready there, you need to bear this in mind. Episode 20 here we go.
00:01:58:25 - 00:02:07:21
Chris
So welcome back to optimum Life. I think that intro kind of summed it up, Mike, is that this is a meaty episode, isn't it?
00:02:07:22 - 00:02:11:03
Mike
Yeah. There's Lou to consider on this one. We get asked it regularly.
00:02:11:10 - 00:02:32:03
Chris
Yeah, yeah. And I think for me, and this is as a business owner that I summed it up there, is that I go through periods where I go, I don't need to think about that. Yeah. That's, that's, that's years off. But having done the prep work for this episode with your notes, I really do need to at least keep elements in my mind so that I plan ahead.
00:02:32:05 - 00:02:54:08
Mike
Yeah. And I always say to people when, even when they're buying a business, what do you how do you expect to leave this business? Is it just one that you, just pass it on to the kids? Do you sell it? You just close the door because a different, different, thought process at the start kind of, makes you run the business differently as you go along.
00:02:54:08 - 00:03:20:00
Chris
Yeah. I mean, and and that's like, I've got it as my first point. The exit plan is that to be sort of aware that isn't hard and locked in, though, is it's just kind of that's where I think I because I keep flitting between going, hey, what what's better? A pension? Then I step back, I get to take a salary as a chairman that has a passing interest in it, but then other times get to know, why do I want that?
00:03:20:00 - 00:03:26:14
Chris
I can sell it and move on and it. But I need to sort of be aware of those exit plan options, don't I?
00:03:26:16 - 00:03:42:00
Mike
Yeah. And it's the, the taking the, the the putting the reality into the textbook. So scenarios that you might you might leave a business, you might think you could do the chairman's role and just be there. But if you've been to a bigger part of the business, then you're always going to be involved in the day to day.
00:03:42:00 - 00:03:51:08
Mike
Yeah. So it kind of it really depends as well on your personality. And what, on how you can run it as well.
00:03:51:10 - 00:04:11:18
Chris
I know that I've worked with, or had conversations with coaches and they turn around and say, don't be working on that. Work on that backwards. Yeah. And that kind of comes into this exit plan. In reality, if you're planning properly, we should be able to do that exit plan as well.
00:04:11:18 - 00:04:23:18
Mike
It's the same with, with all the, the, the ways we look at things, whether we're looking at how much money you want to learn from the business, look at what the end result needs to be. Yeah. And then see if we can get there. Rather than just starting a line and drawing a graph.
00:04:23:19 - 00:04:24:07
Chris
You'll never get that.
00:04:24:08 - 00:04:35:08
Mike
You don't actually know where you go into. And it's only at the end where you go, oh, I made it or I didn't. So I actually start at the end and work out what it is you want, and work backwards.
00:04:35:11 - 00:04:56:01
Chris
Hence you. You're the first, subheading that will come on to a start, planning as soon as possible. Now that's what we've said there. But what interested me with your information was we need a minimum of two years before. So point.
00:04:56:03 - 00:05:16:15
Mike
I would recommend that because that, that gives everything ready. You can you can actually sell it tomorrow if you want to. You could try and sell it tomorrow. But to try and maximize the value, maximize the potential of sell in two years is good, because two years gives someone a chance to see that you shaped up all the things that we're going to talk about later.
00:05:16:22 - 00:05:41:10
Mike
You've got two good years of books, hopefully, to show that someone is worthwhile looking at and buying. But it is that sort of view of, of, of just shaping it up to be more to get the maximum value out of that. Because like I say, you could sell same as your house. You can sell your house tomorrow for the price that someone's willing to pay for it, which tomorrow might mean it's half the price of what it is in a year's time.
00:05:41:10 - 00:05:52:27
Mike
If you did all the bits of work to it and everything now. So it is it's it's not about that. You can't sell it in that time. It's just purely to get the best return that you hopefully can get.
00:05:53:00 - 00:06:05:25
Chris
And one of the key ones that stood out for me about this two year, element that brings that to life more so is that for what is now called business asset disposal relief? Yep. Used to be. What was that?
00:06:05:25 - 00:06:07:24
Mike
Entrepreneur's relief. Yeah.
00:06:07:26 - 00:06:28:20
Chris
You need to have held those shares for a minimum of two years. Yeah. So if I was going to sell and went. Okay, do you know what to make this work? Well, is that I want my partner to have some or somebody within the business to have some or whatever it might be. I can't do that today and then sell tomorrow because they've not held long enough.
00:06:28:20 - 00:06:31:24
Chris
And it would what we could, but it would cost them an awful lot.
00:06:31:24 - 00:06:49:00
Mike
More, a little bit more. So depends. It's, it would cost you another third in tax. Fifth. Wow. 50% in tax. But it's again it depends. That might not be the dealbreaker. Of course it depends on what the situation are. Sometimes things are taken out you control and you have to get it out as quick as you come.
00:06:49:03 - 00:07:05:03
Mike
So it still might be worthwhile. You might still have already done that plan where someone else has come in to the business six months ago, but you still need to sell it. Things change. And so it's again, it's never a deal breaker. It's just knowing ahead what the costs are, what the implications are.
00:07:05:05 - 00:07:26:12
Chris
And and I think it is you're really making the point is that, look, we're talking about utopia here, aren't we, with this planning. And that's what this this episode is largely to plan towards the end for it, however, there could be a situation that you're working with a customer, with the supplier, with a collaborative partner, and they suddenly go, right, guys, this is ridiculous.
00:07:26:12 - 00:07:45:22
Chris
I want to acquire you. I need to absorb you into the business to widen what we've got. Bah bah bah. I'm willing to pay you this. You're not going to. If you said whatever there. If there is what the buyer is willing to sell, buy it for. Yeah. And you kind of go, wow, that's that's too good an opportunity to turn down.
00:07:45:22 - 00:07:49:28
Chris
It doesn't mean you go, I can't. We need to speak in two years time. Yeah.
00:07:50:01 - 00:07:54:22
Mike
No. That's it. You just you work it out. And naturally, everything's reflected in the price.
00:07:54:25 - 00:08:21:28
Chris
Which I was about to say. It's. It could be that. Okay, we're going to lose out on this. And there's a point that we make later in the notes where it's like, be aware of what you're actually going to get after all taxes after this, after that. And that may need to come into the equation. So whilst we're talking two years is like the utopia, it's also important to say if you're within that, you need to take these things that we're going to touch on into consideration of what that price needs to be.
00:08:22:02 - 00:08:23:09
Mike
Yeah, yeah, absolutely.
00:08:23:15 - 00:08:26:19
Chris
It can be all too easy to get seduced by the notes on the end.
00:08:26:22 - 00:08:46:22
Mike
Exactly. I helped business, so a few years ago, big money. And it looked amazing on that first bit there. But then when I worked out and said, but this is what you'll get at the end, this is how much you've been earning now. So actually that's not enough. And then it ended up they were able to go back into negotiations and push it up another couple million pounds.
00:08:46:23 - 00:09:05:10
Mike
Yeah. Because they understood it. So again, it's given the, the confidence in the numbers so that you have when you negotiate in the confidence that you're not just trying to grab another pound is actually going, no, no, that's what I need it to be. Yeah. This is what I know that. So I'm going to go in really firm and strong to get you to get the value that you feel you deserve.
00:09:05:12 - 00:09:22:09
Chris
And I think it's the same principle. I know when we bought one of our houses, it was a new build house, and we were doing a part exchange on the house that we were in previously. The only time we've done that, and they came in and went, your house is worth that. And I went, well, no, it needs to be this.
00:09:22:16 - 00:09:40:15
Chris
They then tried negotiate and I said, no, no, no, this isn't a negotiation. I am telling you, if it is below that we physically cannot do this. I'm not trying to be clever here. Yeah. If you are not prepared to do that I cannot do this. And they went, let me see. And they worked out how they could do it and went fine, let's, let's make it happen.
00:09:40:17 - 00:09:51:14
Mike
And that's it. And it's, it's again, you have the understanding. It's where the power is. It's not necessarily someone else might look at it and go, that's not the right price, but it's the price that works for the two people at the table.
00:09:51:14 - 00:09:53:01
Chris
And they could have walked away. Could they.
00:09:53:01 - 00:09:53:27
Mike
Could have said no and we would.
00:09:53:27 - 00:09:59:19
Chris
Have been okay with that. Yeah. Gutted. But we'd have been understanding it was just it could not work any other way.
00:09:59:21 - 00:10:10:28
Mike
I bought the same house the same way. I felt like I could have got it lower, but they couldn't go. So we were fixed at that and that's where we agreed on a price. Yeah, but still agreed to I still I still chose to to move with that price.
00:10:11:05 - 00:10:32:11
Chris
Yeah, it makes sense. Other things in terms of this lengthy process and I think that's the key thing here. Selling the business can be quite a lengthy, drawn out process, and some of the other things that we update. So we said the share structure within time, if you need that to be sorted, potentially moving property out of the business.
00:10:32:13 - 00:10:55:21
Mike
Yeah. So if you so in this comes back to sort of what what are you selling. Yeah. So some businesses have a factory in an office block or something like that. Now the more that a someone comes to buy that and it's got 1 million pound office block in it, then they're going to have to find the million pound plus the value of the actual business trading within it, which then might push it out, but also your pension fund plan.
00:10:55:21 - 00:11:16:03
Mike
It might be that actually you have that office block as retirement money. Personally. Personally. Yeah. So you might actually move things around to take out the trade or take out the property so that you sell the actual underlying asset that you want to sell to somebody else. And that sort of planning comes into it as well. So and again, that takes time.
00:11:16:06 - 00:11:31:18
Mike
You've got to choose the right price place to do it for either for tax or for funding or for you name it, whatever else is coming up. So again, it's understanding that process of what what's in your business now and what is it you're trying to sell.
00:11:31:20 - 00:11:32:19
Chris
Yeah.
00:11:32:22 - 00:11:47:03
Mike
Because some people go, oh, I'm not actually selling my van. I want to keep that van or something, or the car does in it. So actually I want to take it out. Or it could be I'm keeping the laptop is markets or ice pack or whatever, depending on the size of the business. Again, you might be selling a small business for five grand.
00:11:47:03 - 00:11:51:29
Mike
They go actually no I want to keep the laptop. You want to sell £1 million business and it's warts and all. And so the.
00:11:51:29 - 00:11:53:12
Chris
Fixtures and fittings okay.
00:11:53:14 - 00:12:01:14
Mike
Yeah that's it. So it all just comes down again is understanding what it is you want out of it for no one out there.
00:12:01:16 - 00:12:25:00
Chris
Now and in the future. No I agree there was a phrase and when I first read it, I thought it sounded question of all. But it's actually genuinely not because when we are flat out busy running the business, doing the business, we can become apathetic because we know what's happening. We know what what is going on within the figures and whatever else.
00:12:25:03 - 00:12:37:29
Chris
But the phrase was enhanced financial reports to show strongest quality of earnings. That is not manipulated, and that is making sure that the whole lot is in order, so that you are really bringing to life what what the story is.
00:12:37:29 - 00:12:55:02
Mike
If you say you got a set of accounts, it shows 100 gram profit because you didn't work as hard or it wasn't as you didn't take on, you're running a low capacity because you couldn't be, but you didn't need it. Not because you couldn't, but you didn't need it. Personally, the money that was generate was fine, but it had the potential to do 200 grand.
00:12:55:05 - 00:13:11:24
Mike
It's hard to get the full maximize the value on what it could have done to underground if I had actually done that, it could have done that much. And if and if you're trying to sell it on this whole could have been should it should have done, no one else is going to pay you full price for what could have happened.
00:13:11:25 - 00:13:28:13
Mike
Now they're looking at going, oh, that's my brucey bonus if I get that through, because I can do that. I can add that, I can enhance that. So quite often when we get, a client who's looked at a business, you get the particulars come through either from the other accountant or from them, and it's this is the profit.
00:13:28:13 - 00:13:45:06
Mike
And then you adjust the things that you would take out. So wise wages pensions director wages, cars on typically there. And you get to this adjusted figure and then they go oh but we'll put an extra 50 grand in because you could have made 50 grand if you took on this project and stuff. And it's like, yeah, I get that, but I'm not going to pay.
00:13:45:06 - 00:14:05:09
Mike
I'm not going to advise my client to pay for that when it may or may not happen. There's no guarantee just because you said so. And so it's, it's trying to understand that from both sides. And it's the argument I tend to put to clients and go, right, say they're selling. They want this price because they're selling.
00:14:05:11 - 00:14:23:01
Mike
Maybe it's this price that someone's buying it somewhere in the middle. But I try and flip it. They go, what do you think it's worth? I said, okay, and they're selling a set of widget making business, right. Go. Okay. You're in the market. Look at this lovely widget making business I've got here for sale. What would you pay for it?
00:14:23:03 - 00:14:43:02
Mike
And they'll go, oh, I pay that. I said, okay, so why are you trying to sell it for more? How do you think you can. So it's you try and I try and get the thought process of them buying their own business. Yeah. And so they can understand what is it they would buy. Because then they know what the person in your side of the table is going to say when they go into the negotiations, if they go, oh, I want a hundred grand for this.
00:14:43:05 - 00:15:02:20
Mike
But they if they were buying it would go, I said, you're worth a tenner. Then it kind of just opens up that mindset. And Rich, the previous partner, he used to say something to me goes the point when you both are not quite satisfied, you're a little bit grumpy on what the buyer and the seller is probably at the point where you find the right price.
00:15:02:22 - 00:15:11:20
Mike
Yeah, the one he's buying is perhaps pay a little bit more than he wanted to. The one selling this paint is sold it for a less than what they want it to be somewhere in the middle.
00:15:11:22 - 00:15:34:06
Chris
And I could actually picture it saying that as well. That is so true. And I mean, I guess my understanding, from what you're saying there is that there might be certain, life style accounting. I don't know whether whether that's the right way to do it, that because we're running a business, we go in. I mean, you mentioned, you know, my wife or or car or this or that.
00:15:34:06 - 00:15:42:00
Chris
The other you kind of go, you know what that makes financial sense, that it's been done that way is we're bumbling along, is that you might get your business. Yeah. So suddenly.
00:15:42:00 - 00:15:42:28
Mike
Going for someone else's.
00:15:42:28 - 00:15:50:14
Chris
Business for now, let's get rid of that luxury to to me, as the owner, I'll go and get myself a car or I'll go and do this.
00:15:50:19 - 00:16:05:14
Mike
And B to actually take it out of the accounts. But it's to make it clear and clearly and identifiable that that's part of the ongoing business. Correct. So if it's all muddled in and stuff, you know, trying to you take it out a little bit, then it's hard to it's hard to prove to someone this.
00:16:05:14 - 00:16:07:00
Chris
Will be gone. This will be gone.
00:16:07:00 - 00:16:19:27
Mike
So if you can just go look, here's a 12 month lease cost that was in there for my car. I went elaborate and I got a very fancy car because I could I you would take that out, you could sell it and you could. So you would start with the account.
00:16:19:27 - 00:16:22:25
Chris
But you they need to see that clearly don't they. And then they go yeah.
00:16:22:26 - 00:16:38:20
Mike
Fair. Yeah that's fine. Yeah. You just go well. And because it might be that you go, well I've canceled the lease, I've already negated the lease. I to pay for it myself or something. Whatever it is, you can just go. Yep. Tick tick tick. So when someone's doing the due diligence on buying it, they can go. Yeah, I can see that.
00:16:38:20 - 00:16:46:04
Mike
I can see that. Yeah, I can, I can this profit figure here looks looks reasonable that we're actually going to have post acquisition.
00:16:46:05 - 00:17:10:14
Chris
Yeah. And to really put a period of time whatever that is that you go right for the next one year, two years, whatever it is, we're going hell for leather now. You said, for example, you just sat back and it was it was enough. I hate businesses. There's a phrase called myth machines in field, that they suddenly go, right, let's really increase that when they get more contracts on board.
00:17:10:16 - 00:17:24:29
Chris
The length of time that those retainer contracts are. So I was telling me, recently is that if you've got a whole load of two year retainer contracts, that's more, more attractive than a six month retainer contract.
00:17:25:05 - 00:17:42:00
Mike
Because what does it give the person buying it more security that actually that profit is going to be made? Yeah, because a lot of the time you're going to you're going to pay for something that is going to generate a return over 3 or 4 years, probably anything more than that. You don't really want to be getting towards that unless it holds a big capital value.
00:17:42:00 - 00:18:05:00
Mike
Yeah, but so you need to be sure that in 3 or 4 years time, once you taking into account the tax and everything that you're going to get your money back. And if having a six or a no contracts or a day by day sort of selling business, you've got to look at that and see if you're buying it, whether that seems that you've got trust in the fact that you're going to make that level of money so many people go into and go, yeah, be fine.
00:18:05:00 - 00:18:17:01
Mike
It said it made 100 grand, so you must be able to do that one more. And actually, as anything with a typical takeover of business, there's ups and downs and stuff and then you suddenly go, oh, I can't afford the repayments.
00:18:17:03 - 00:18:35:24
Chris
Yeah, yeah. No, I get that and I emphasize as well, by the way, if any questions come up in your mind as we're going through this, I encourage you to note them down because otherwise you'll forget them by the end. Note them down. And if we haven't answered them within this episode, please get in touch with Mike.
00:18:35:27 - 00:18:52:06
Chris
And be delighted to to answer any questions, because it's not a one size fits all. No, by any stretch. And myself as a business owner, when I was getting ready for this episode, I was like, okay. Or I hadn't thought of that or I had, but I've not got round to it. And it's like, okay, this, this makes sense.
00:18:52:06 - 00:19:09:09
Chris
So please do jot them down. Any questions you might have? We've already started touching on this, but what are you selling? There's my next question. And it's like, right, is it every asset we obvious. One is that you need to define what's in that. That's in given in the contract. And both sides will be keen to do that.
00:19:09:16 - 00:19:24:17
Chris
But what was interested in is that there was areas that I possibly hadn't thought of. Property portfolio. We've already touched on other investments, trademarks, intellectual property. It's like something there's a there's there's vaporware within there as well.
00:19:24:24 - 00:19:45:08
Mike
Yeah. And that's it. Everyone can touch this. You know this exists. We got a brand. Is it is it a brand. This protected? Is it a brand that could be copied again? So on buying it, are they confident that what they're getting is what they're getting? And that's what that's what when if you're trying to sell obviously this this this discussion, you can be on either side.
00:19:45:08 - 00:20:03:11
Mike
So if you're buying it you be thinking of a lot of these things that we're trying to protect against. If you're selling, but if you, if it's, you're creating as much trust and confidence in for the buyer. Yeah. So if they're comfortable they're going to be happy to hand over that money. If they're not confident the price keeps getting down.
00:20:03:13 - 00:20:06:06
Mike
Coming down. Oh yeah I'm not quite happy with that. It will be.
00:20:06:10 - 00:20:07:20
Chris
Forever to get done or.
00:20:07:20 - 00:20:29:26
Mike
Whatever. Yeah. And naturally that as time goes on, the price is reflected in. Not everyone just gets a little bit of that. That first initial buzz honeymoon phase of trying to look at something just runs away a little bit. So it's the whole idea in this time. This build up is to go and, and this is where the time helps, because you can build up the things you can build at the reports.
00:20:29:26 - 00:20:47:03
Mike
You can build up the, the assets, the, the, the evidence to say all these trademarks, the IP and stuff like that is all there a nice clean list. If you silence a bank, clients like that's typically on accounts with them. Let's make sure that those lists are fully up to date, have all the right details, everything like that.
00:20:47:03 - 00:21:05:15
Mike
So someone looking at it can go, yes, I could take on this business and I can run it as well, if not better than the last person. Yeah. You don't want to be going. Oh yeah. I'll take on that business and I'll give it a go. And no one's, no one's going to pay for that, that sort of winging it and sort of maybe not, maybe yes kind of approach.
00:21:05:15 - 00:21:11:00
Mike
So the whole idea is you're building up your business to be given confidence to the buyer.
00:21:11:03 - 00:21:20:00
Chris
Absolutely. There was a difference as well, being pointed out between an asset sale and a share sale.
00:21:20:03 - 00:21:41:29
Mike
So a share. So so you've got limited company and so you've got 100 shares 100 piece of the cake is owned naturally. You or you, your partner or business partner own those shares. If you sell the shares it's like me going, you go, there's the box. You get everything in the box that I had. It's all yours. And then you buy that and they take it on exactly as it is.
00:21:41:29 - 00:22:07:22
Mike
Same bank account, same customer list, same name, same company number, fat number, tax number, everything. With that, if you're buying it or the potential liabilities of that finance and things that you might not even know about. So things that say everyone goes, I'm up to date my van, but if you're that hasn't been far correctly, you've got a liability that you don't know hasn't crystallized, hasn't happened yet.
00:22:07:22 - 00:22:21:27
Mike
But if HMRC come in and go, oh, they underpaid their van on that fat return by ten grand cause they didn't submit it correctly. They may have paid what was due and it's all those things but that's what goes. It's like all the all the good stuff and all the potential bad stuff goes with it with a share.
00:22:21:27 - 00:22:37:11
Mike
So everything that's in the box moves across. It's like if you, someone comes along, buys a house and just buys the house. Everything. Everything all in it, everything in the kitchen, all of you got anyone want it? Yeah. There we go.
00:22:37:15 - 00:22:39:06
Chris
Price has just gone down.
00:22:39:09 - 00:22:58:08
Mike
Whereas if you sell, like an asset sale, you go, right. I've got what's the asset? The business. Typically it's a group. Well, it might be the machines, it might be something like that. And you go assets can be ones you can touch, tangible ones you can't touch intangible. So the bits that the name and the thing, the reason the customers keep bringing up might just be a phone number.
00:22:58:10 - 00:23:18:29
Mike
They run out that phone number. That's what they ring. It's just natural. Like taxi firms are sold quite heavily on the phone number because everyone has it in there. They don't necessarily know which tax it used to be. You know, it's all apps and stuff but easily levy on the phone numbers. Right. That's what you're selling. So then you would you would take that out of the business and sell that to you.
00:23:19:02 - 00:23:29:20
Mike
The person selling it would keep the business all right and keep the shares. And then that dealt with tidying up, closing it down. But it's the asset sale or the selling was in. The person is.
00:23:29:21 - 00:23:32:18
Chris
Not the same as asset stripping. Or is that a more.
00:23:32:18 - 00:23:39:17
Mike
Well, an asset stripping is typically where someone will come and buy the whole thing, take out all the good stuff and then.
00:23:39:24 - 00:23:55:18
Chris
Just cannibalize it. Basically. Yeah, yeah, yeah. And so that's the extreme version. Yeah. That's there is a very so there could be that I turn around and go, right, I've got something that they really want. They're not interested in my company visual PR productions, but they want that we sell it as though they're buying all of that. But the.
00:23:55:18 - 00:23:56:18
Mike
Yeah but they just get.
00:23:56:18 - 00:24:00:22
Chris
The contract details. There's just that bit about how about to close this down. Yeah.
00:24:00:25 - 00:24:16:11
Mike
Yeah. And so some people won't buy the whole box because they don't want the potential liabilities that come with it. Some will just go, yeah I'll just have that asset. But again the knock on effect is so for the person buying that, that's a lot less risky because we don't have to worry about what's in there.
00:24:16:11 - 00:24:17:20
Chris
Yeah okay.
00:24:17:22 - 00:24:34:24
Mike
But you have to set up a new company because you got to move it into a new company, which means all the customer has got to move to a new bank account. All the contracts got to move over all supplies got to move over. Right. So there's a lot in the stock. There's a lot more, administrative burden and, risk.
00:24:34:24 - 00:24:51:03
Mike
So you may say you've got a gym and you want to move it over to a new company there. Will needs you move them all over to a new direct debit system. Those customer this those memberships might go I'm actually not going to renew. And so actually in moving over you lose 20% of your customers.
00:24:51:05 - 00:24:51:13
Chris
Yeah.
00:24:51:13 - 00:25:20:12
Mike
So and there's your risk. So what is your trade off or what you think that might be a liability to, to what you might gain over here by having it. Not with that and what you might lose. So again there's no perfect scenario. You just weigh up the probability of benefit in that. So again if you're selling a process, understand what you think is most likely a customer might want to do and shape it tidy to make it as attractive as possible for that process.
00:25:20:12 - 00:25:33:13
Mike
And it might be you go ready for sale. I've done all this. I've set it up ready so you can lift it up and put it into your business so that you don't have this, this and this. It's all nice and tidy. The client list is all perfect. We move it all over. We can use this. You've already thought of it.
00:25:33:13 - 00:25:42:14
Mike
Rather than someone having to work it out again. Oh, yeah. We've got. Go get my advisors in to do that. When? Day we do that. Get the IT guys and you might go. I've already all this is ready.
00:25:42:19 - 00:25:44:26
Chris
Just add water. Yeah, yeah.
00:25:44:29 - 00:25:55:04
Mike
So it's it's an understanding what you got and what you sell it and how you sell it, how you want to sell it. So that it, again, always comes back to what will make the buyer more confident.
00:25:55:10 - 00:26:26:17
Chris
Absolutely. And from the seller perspective, we're saying about what are you selling? But equally that becomes relevant to what your plans are. Are you retiring in which case I don't I really don't want anything ever to close down from my perspective. Are you looking to, start a new venture, off the back of it, which includes any clauses that could be in, like, you get quite a lot that says fine, but you've got to now stay at the industry for two years, five years, whatever it might be.
00:26:26:20 - 00:26:33:03
Chris
There was one in there. You said reinvest. Would you actually sell that and then reinvest in the same?
00:26:33:05 - 00:26:52:07
Mike
Well, sometimes you might still be passionate about that business and you might go, actually, I'm going to exit, but I'm going to retain a 10 or 20% stake in there for you guys to run because I still want to be part of this journey. Yeah. I still is still my baby, but I'm going to go back and just be a shareholder in this business.
00:26:52:07 - 00:27:10:03
Mike
And then again, what the benefits are that something got by 80% of it sitting or find 80% of the cash, but also someone buying it might go, oh, actually, you know, that makes me more confidence because you've got all this experience and I'll be able to knock on your door and you might have an agreement to knock on the door and go.
00:27:10:10 - 00:27:26:06
Mike
Just need a little bit of help of working out this bit, working out that bit. And if you've got a good relationship with the person buying that, then that might work. At the same time, that might be not attractive because someone going, oh, I don't want that wood lying around whilst we're trying to run the business and change it.
00:27:26:09 - 00:27:44:09
Mike
No, no, I don't want you having any part of this business because I don't want you just walking as in as if you still own it, because you've still got a small stake and the staff don't think anything's changed and did it. And I can insulate like the buyer can make new positive changes. Modernized systems do this because they're they're still walking around.
00:27:44:09 - 00:27:50:14
Mike
Right. So again what is it. And again you can't say which will work for each business. Some work something.
00:27:50:17 - 00:27:53:24
Chris
It's in the negotiations the discussions everything.
00:27:53:27 - 00:27:59:15
Mike
If you all retain an estate I think it would naturally be on the big more corporate kind of sales.
00:27:59:18 - 00:28:19:11
Chris
I'd say yes. Now I think about it. There was one. I was a minority shareholder in a in an IT business, and it was sold. And as well as the cash thing, there were some shares in the parent camp. The ultimate parent company from memory was and I got yeah, I get that and so that's a future thing that you hold there and that.
00:28:19:12 - 00:28:42:00
Chris
Okay. No, I get that. Here's an interesting one. Then seeking a valuation for that business. We've kind of touched on it. It needs to be realistic. It is worth what a buyer will, pay. But there's a discussion about using a professional, to help you get that valuation.
00:28:42:00 - 00:28:59:28
Mike
Yeah. It's the same as, selling a house. And you get an estate agent into common value. A so you're, you might think what it's worth. They might think they know what it's worth, but the next estate agent might think is a different one. Yes. And the next one. And then the buyer might come in and go.
00:29:00:00 - 00:29:06:26
Mike
It's none of those is something else. Right. So I find this is a question that is regularly asked.
00:29:06:26 - 00:29:07:29
Chris
It's to be hard to come and.
00:29:07:29 - 00:29:34:08
Mike
Value my business. I might well it depends what multiply. So typically you take your profit. It's called an EBITDA. That's the fashionable word to use EBITDA right. Earnings before interest tax amortization depreciation. Right. Yeah. So essentially you get your profit on the bottom. Yeah I bought depreciation which is just writing down your asset value and stuff. Add back any loan interest financial interest in bits like that.
00:29:34:11 - 00:29:51:21
Mike
And you get to this profit figure. Then you adjust it for what should be in there. So maybe a market rate salary. So if you're buying it the directors normally in there a 10 or 12 K salary you might go, well actually a market rate salary is 40 grand. You're taking 40. But it's down here. It's dividends. Yes okay.
00:29:51:21 - 00:30:09:07
Mike
So let's put in there and then you go right. But take out the lease, take out those whopping great big pension contributions you've done because you retire. Take out this, take out that, and then you get to this figure at the bottom, I, I typically use a basis the average over the last 2 or 3 years. Right.
00:30:09:09 - 00:30:28:01
Mike
Time weighted. And then you times that by a multiplier. All right. And here comes the, the, the question what multiply to five, 1020. There's a county big accountancy group that was in the papers yesterday that was selling on a 15 times multiplier.
00:30:28:03 - 00:30:28:24
Chris
Wow.
00:30:28:24 - 00:30:48:12
Mike
All right. That's what they're trying to do. You got another business, but essentially multiply times the technical work. But look at it is how many years you want to get paid back. Yeah. So a three times multiplier is you make you'll pay three years worth of profit. So in three years time you get your money back. Okay.
00:30:48:15 - 00:31:02:20
Mike
One thing that's caught out a couple of clients is you've got this profit is before tax. So if you've adjusted this and you make 100 grand, you're going to have 2022 grand tax. So actually only make 78. So if you've agreed to pay 100 grand.
00:31:02:22 - 00:31:03:09
Chris
You're losing.
00:31:03:09 - 00:31:18:26
Mike
You're losing the tax money. So that's a couple clients like before when they haven't picked that up they just gone for this figure right. So that's essentially the multiplier. How quick do you want to get paid back. So you add that and then you add that on to that's kind of like your goodwill the value of that business.
00:31:19:00 - 00:31:36:18
Mike
And then you add on to whatever the the balance sheet value is or and so the balance sheet value would take into account all your assets, all the bank balance tax bills you haven't paid, wages you might not have paid. And everything like that all gets jumbled up. And you add the two together. And somewhere in there is a figure.
00:31:36:24 - 00:32:04:00
Mike
I don't know whether it's the right figure or not. It's a figure. So quite often if you go to a broker, the they might start with a higher figure as a try to figure. Yeah. Whether that's a sales technique or not. I think you've got to try and understand is your business salable. Is it. And what what would you buy for it.
00:32:04:03 - 00:32:29:25
Mike
And then that's giving you some some boundaries to work towards. And then it all comes down to your sales technique. You might just go in and go look, I don't care what you think. I need that figure. I'm not taking anything different. That's it. And that because that figure might after tax do what they need to do, whether that gives them the investment for a new business, enough money to retire on, enough money to pay for the kid's wedding and then retire.
00:32:29:29 - 00:32:40:14
Mike
Yeah, whatever it is, some might just go, that's what I need it to be. I don't need the big amount in there to get the most out of it. I just want this because this gives me what I need to do next. That's my next chapter.
00:32:40:14 - 00:32:42:20
Chris
Absolutely.
00:32:42:22 - 00:32:53:15
Mike
So yeah, that's so that's typically the valuation process. But like I say, I could sit and go three times, six times eight.
00:32:53:18 - 00:33:02:12
Chris
Would you go the other? I mean, point one is you need the brass tacks nuts and bolts that okay, let before the multiplier.
00:33:02:14 - 00:33:05:05
Mike
That get really the figure. Yeah.
00:33:05:07 - 00:33:22:19
Chris
Then you as we were saying earlier, you kind of need to think to the angle. What do you need that to be to work for you in a utopian world. That's it. And then you go, okay, to achieve that, what's the multiplier there? And you kind of go, yeah, that's, that's that's fair enough. That seems.
00:33:22:19 - 00:33:23:01
Mike
Reasonable.
00:33:23:01 - 00:33:32:25
Chris
Or it's a little bit fanciful, but if I spend the next six months doing this, we can get that to where we need that can achieve it. Or let's go and try and test the.
00:33:32:25 - 00:33:59:05
Mike
Market because it might be you go, oh, I need 1 million pounds to retire. Okay. But you're making 60 grand a year. Someone's not going to pay you £1 million for a 60 grand return. Just no one. And I think the stark reality is a lot of businesses will not sell because either the price they want to sell for is unrealistic, or actually the business isn't in a shape that someone could take it on.
00:33:59:07 - 00:34:27:08
Mike
So if you're Mr. John Smith, plumber, one man band, your phone number, your personality, your customer base, your mates as the customer is or whatever, somebody else buying that phone number isn't going to make the same amount money as they mate, because you can't step away. But somebody's a plumber who's got 15 engineers, and he just sits in the office and manages the whole site is more likely to sell because somebody else can come over, he can come out of it.
00:34:27:08 - 00:34:49:04
Mike
And I think that's one of those ones that we got here. What things you need to do. And this leads I'm going to take the Segway straight into this one. But you've got to prove that you can't you you're not in the business. You're not needed in the business. Now for a lot of businesses that can't happen. And that's why go into this business is because that's why most businesses won't sell, because they can't prove that, then they can't be involved in it.
00:34:49:07 - 00:34:52:19
Chris
Yeah. Will it survive without me? That kind of thing. So if.
00:34:52:19 - 00:35:02:12
Mike
You're a one man band tradesman, you're 99 out of 100 times going to have to be required to be there to be to show you the profits and everything else you got.
00:35:02:12 - 00:35:30:12
Chris
There. And there's there lies, and it's certainly something that I've identified as well as a business, is that, let's be honest, the majority of businesses start because a person or a number of people come together, with an expertise in something, a knowledge of something, a passion for something. And they create a business around that, selling that product or service, that, that they have mastered in whatever way.
00:35:30:15 - 00:35:55:07
Chris
And that's cool. That's what you then build the business off. And what I've then learned is that this one of the scale up tasks, and it's very relevant to this because it's what enables you to then be able to sell it, is that I need to gradually extract it from being vital that I'm there. I need this to exist even if I'm not around and that's way in advance.
00:35:55:07 - 00:35:59:20
Chris
I'm already thinking that now, and that's it. And I'm not even near the two year point.
00:35:59:20 - 00:36:17:28
Mike
And that and that's the, and that's the the question that's at the start of a business of what do you want out of it? Do you want it? Because some people might go, I don't want to force myself out of it and not running it. I enjoy doing it. Yeah, yeah. And they go and actually that's fine because I don't need to sell it.
00:36:18:00 - 00:36:37:18
Mike
I'll just build up the profits in the business. When I get to the point, the staff get made redundant, close the business, put the money in my pocket, pay the tax, man, and walk away. And that might be the perfect solution for that person. And that's what the discussion is. We back. Here it goes. What is it?
00:36:37:20 - 00:36:51:05
Mike
You. How. What do you want this business. Yeah. Because if it's depending on which one it goes down, it might be that it has to be a sale because that's where the bigger ticket money is. Yeah. And it might be that actually, you know, it's this one or it might be a bit in between.
00:36:51:08 - 00:37:11:09
Chris
Yeah. Because I mean I wonder whether there's a, there's a I don't know how to say it was not a ticking time bomb because it's not but a growing trend. What's what's the phrase we have now, a gig economy where people are doing multiple things that they enjoy, and that's what they are earning their money from, which then sort of goes, well, okay, why?
00:37:11:10 - 00:37:16:15
Chris
Like you said, why do I want to then extract myself from that? I want to be doing these things that I enjoy.
00:37:16:15 - 00:37:36:20
Mike
And I think you got to get at the end of that, you got to for a business to to have a chance to set in. I use a phrase, with clients, the super profits you take, you've got, you take the money that you need to earn, and there's that much that's left over every year. So if you want 50 or 100 grand to earn, you take it out and then you still got that much on top of there.
00:37:36:22 - 00:37:56:27
Mike
Because if it's got that much on top of it, someone buying it can make some money on it. They can get some money, they can replace you, put a salary in and make that. And that's the return. Yes. Right. If it's not making the extra bit, if it's just paying for your lifestyle, your mortgage, your bills, your kids hobbies and everything else, your holidays, someone's not going to buy a job.
00:37:57:00 - 00:38:02:04
Mike
No. Which essentially what you've got here, you've got a job. It might be a job that you're in control of yourself.
00:38:02:06 - 00:38:03:27
Chris
But it's just a job. You're making a living.
00:38:04:00 - 00:38:11:07
Mike
From something and doing great. Yeah. Yeah, absolutely. You might be employing 1015 staff, but unless you're making that super profit, you're unlikely to get a sale. Yes.
00:38:11:07 - 00:38:33:27
Chris
Yeah. Yeah. And and it really is. It's about understanding what you want because not every business is force going to be for sale. You talking about that long term plan. It's like going now I'm not I'm not. If I can then of course I'll look at some figures. But that's not necessarily my long term goal. I know that by then I'm putting into a pension.
00:38:33:27 - 00:38:53:22
Chris
I'm doing this, I'm doing that. And so that by the time I get there, it's like going, right? That no longer exists. Yeah. Or, you know, like I said, is that one that I flip between all of them? Is that now, if I can still to be taking a salary from something that can continue, I'm happy days and I can be involved a little bit.
00:38:53:24 - 00:38:58:01
Chris
It's not like I'm going to be working five day weeks and things or seven day weeks as I'm doing at.
00:38:58:01 - 00:39:17:12
Mike
The moment, and I've helped start a business for a couple before, and I the numbers suggested, what's the point? I sell them because they make the money they can make each year in two years would have paid back what they sold for. Right? But actually, that one came down to the people. They didn't want to be running a business anymore.
00:39:17:12 - 00:39:34:29
Mike
They didn't want that phone to ring with a problem 3 or 4 times a day or 2 or 3 times a day, or they pop on holiday for a week. You know, when you're the boss man of the business, people say like the owners, that phone is going to ring at some point with a problem. Yeah. And they just didn't they they mentally couldn't deal with that anymore.
00:39:34:29 - 00:39:50:13
Mike
They wanted they've been doing it for 50 years, 40 years. And they're like, actually I'm out, I'm done. And so they just wanted that clean break and again is playing the numbers suggested another route. But actually what's the reality. What is the actual purpose that someone needs?
00:39:50:15 - 00:40:07:08
Chris
I think we've touched on it in previous episodes. Not even related to this is that life curveballs can certainly change, whether it's it's an illness, the loss of someone, whether it's a mental health thing. What? Whatever that something makes you go, you know what? I'm out.
00:40:07:10 - 00:40:29:14
Mike
And I've had to deal with that in the last 12 months. Couple of times the plan was this grow, grow, grow, grow future. So in ten years time, hum. Break something. We've got to do something now. Whilst in the middle of that emotional sort of upheaval. Yeah. So again, it is just you can have a plan, but you might not ever be able to stick to it.
00:40:29:16 - 00:40:48:28
Chris
But it's still, you know, without going into sort of like coaching here is it's so important to have that plan, isn't it? Because it can do this. But it's okay that we, you know, change it. I mean, I think I've said to you is that for my business, I've got one strong possibility of franchising going, you know, in the medium term future.
00:40:49:00 - 00:40:59:21
Chris
But I've equally said to you, but I might get to that stage and go, do you know what? I don't want that hassle. I'm fine with where this is at. Yeah. Because it's it makes that profit. It does what I need.
00:40:59:24 - 00:41:01:21
Mike
Is it ticking the boxes? Yeah, exactly.
00:41:01:21 - 00:41:19:15
Chris
I can still extract myself. I can still do this, blah, blah, blah. But whatever. But that doesn't mean I've got I'm still got that. Okay? That's where I want to get to. It makes sense. I know how I'm going to get to it. And equally, I'd like to emphasize at this point, we also don't need to have all the answers right now just because I've got a plan for that.
00:41:19:15 - 00:41:32:28
Chris
And I go when I get to this stage, I need to understand that even more. The how the heck I achieve that. Yeah, we don't need this war and peace, plan. Some of it we can find out.
00:41:32:28 - 00:41:36:00
Mike
Like it's a general trajectory is exactly what you need.
00:41:36:02 - 00:42:01:14
Chris
Yeah, no, that makes sense. We did touch on, you know, brokers. And one of the key things is, if you try to sell it yourself because it's cheaper if you're not paying for a broker. But are you being objective about it? And, are you going to manage it properly? How vulnerable are you? So if you go for a broker, they're going to have a commission.
00:42:01:14 - 00:42:19:06
Chris
You need to be aware of their policies, know is there any teams payment or anything like that. But they could be more objective. They could shop around. I mean, presumably if I sell it myself, it will be either someone's approached me already or it will be my existing contact lists.
00:42:19:08 - 00:42:37:18
Mike
Quite often if a business sells, it is or is to somebody they know. Yeah. Whether it's a supplier or a customer, another business owner that won't start it on. Typically it will be to some of the size firms that we're working with. It will be to somebody they already know. Know typically someone in your customer base or supplier base.
00:42:37:18 - 00:42:57:13
Mike
If you've got one bigger customer, it might be that you sell to them because you they can install it into their their business, they can add it on, they can bolt it on. And if they if it's something that's emerged with a similar industry, they won't have the same rent. They won't have the same costs. So actually they can get a return that makes it worthwhile for them to buy it, whereas so on buying it as a standalone business is might is.
00:42:57:13 - 00:43:13:09
Mike
But going back to the phrase of buying a job. But there's the ability to make the extra profits by merging them with another one. That's what you see. A lot of accountancy firms, mergers and mergers, and you see lots of other firms coming together because actually they can cut the overheads in half and make it a bit more profitable.
00:43:13:11 - 00:43:35:26
Chris
Okay. Now that that makes complete sense. I was also thinking is there is as much an episode that exists here on buying a business. Yeah, because I've got in my head that I anticipate I want to acquire businesses that will be complementary and broaden the scope so that it'll all be related stuff for me.
00:43:35:26 - 00:43:54:16
Mike
Yeah, that definitely is something some some of the bits to think of is the counter argument of what we're trying to do with selling. Yeah. But there is naturally a good topic for that because the businesses that are growing are looking to add more turnover, more more industries to services to their business. So I'm not sure there's a lot of yeah, acquisitions going on.
00:43:54:16 - 00:44:17:05
Chris
I for me it's not just it would be great. You know looking at going right there as a business and like we're talking about the mass that goes it's making that much profit already blah blah blah. Therefore it's going to take this long to get the return and then make money thereafter. But it can also be know as well as that my serves, I've got a ready made customer base to go and up sell my services that I already have.
00:44:17:12 - 00:44:35:29
Chris
Plus the complementary sort of thing could remove some cost that I'm outsourcing or whatever else that actually the bigger picture becomes a better deal. Now let's bring it back to this episode. Is that that considerations for me as the seller going, I know what I'm going to be given to that company. It's not just that.
00:44:36:01 - 00:45:01:07
Mike
Yeah. Because that's and that's your that's the sales pitch. You always have an up and go, yeah, actually we can do this. You would take these costs out. Therefore this is the profit you'll make. You make it look good. You give it some evidence that someone's got some confidence in it. Yeah. And there's, there's, there's again it's no different to trying to find a customer to sell, supply of accounts services that you video content to the your.
00:45:01:09 - 00:45:14:15
Mike
This is same approach, but you're just selling a different product. You're selling your whole business. Yeah. Rather than just a one off show or a series of shows and stuff. So is that it's the same idea you're looking for where your customer is?
00:45:14:17 - 00:45:20:09
Chris
No, absolutely.
00:45:20:12 - 00:45:49:00
Chris
There was a phrase that you had as well. We're talking about a plan, and we have kind of sort of said that it's the if I don't want to use the word vague plan because that undersells it. But you make a key point about keeping updating that plan. That can include external forces such as market conditions. Interesting. One that I hadn't thought of is, is base rate changes that could have an impact on the borrowing of that buyer to buy your business.
00:45:49:03 - 00:46:08:16
Mike
Yeah. And that's and I think that again, that's a bit we haven't talked about is how you get paid. A lot of people want to be paid on the news on the day of sell in, like you would with the house, but actually in reality, no one's going to hand over that level of money on the day. There's always going to be a period of what we call deferred payments.
00:46:08:19 - 00:46:26:25
Mike
So say you agreed to be paid X today and then the balance every month over three years. That person is either taking into account the borrowing or if they're going through you want it all on one day someone's going to the bank to borrow that level of money. So if interest rates are high, the borrowing cost is high.
00:46:26:25 - 00:46:46:28
Mike
So therefore their their spend capacity goes down. So you might get less because they have to borrow. So again that's where then you go, well actually I'll take the money a bit longer so that they don't have to borrow as much. So therefore that borrowing cost comes down. Your risk is slightly higher because you're relying on them right in the business to pay you.
00:46:47:01 - 00:47:08:01
Mike
So again you got to factor all that into it. Again. You start juggling what's right, what's not. Yeah. But yeah, the interest rates is definitely something if if interest rates are ones and twos, percent, 3% then is cheap to borrow. And you would because it's hardly anything. Go to your 10 to 15 and you go oh that's quite a lumpy amount of insure of interest.
00:47:08:01 - 00:47:29:10
Mike
You've got to pay every month or every year to have that business, as well as buying. You have that profit figure, the EBITDA on the adjusted one for all the other stuff. But you will then going to put in the borrowing costs that's going to bring that profit down. You're going to it's not quite appealing now because interest is now on paying out 25 grand a year on interest instead of what could have been 5 or 6.
00:47:29:16 - 00:47:45:07
Mike
It's a bigger number that's eaten up. It might put another year on to the repayment period. Another year goes. I don't feel comfortable not being having my money back for five years, let's say. So the buyer's confidence dwindles. So therefore the price dwindles.
00:47:45:09 - 00:48:06:18
Chris
Now. Absolutely. And we did touch on as well that that as well as cash. There could be dividends in the, in the buyer company or whatever else. So yeah, there's all sorts of things. But you do need to keep looking, keep changing, running your own forecasts internally because you could suddenly pick up a really good contract that actually is about to be, you know, spawned off into a different direction.
00:48:06:18 - 00:48:07:00
Mike
Then.
00:48:07:02 - 00:48:08:24
Chris
That suddenly made even better.
00:48:08:27 - 00:48:12:10
Mike
And so building up that the confidence for that, that buyer.
00:48:12:15 - 00:48:46:04
Chris
Yeah, absolutely. So we touched on this already is that we said about making sure that the business can survive without you. And I think that's such a key one and one that I've already identified myself. And the best advice that you were giving is to build a senior management team of a good quality. That and just gradually start stepping away from the day to day to like in advance of, of even putting it, making it available.
00:48:46:04 - 00:49:12:03
Mike
So for one of my clients, I said to him to have more holidays. So instead of having two holidays a year, he has four. Wow. Because he's there's more time when he's not around. So the people that are left running it, the management team as we call it, if we're doing that, whoever's left, they have to make the decisions themselves more often so they get more confident making their decisions, because you're not on the end of the phone because you go, oh, so I've gone through them all these.
00:49:12:06 - 00:49:33:21
Chris
Massive step, isn't it? Even speaking as the business owner. And it's not about being the the the loose phrases is a control freak. It's like no, when you are doing it, you know what you're doing. You know the level that it's going to be done and you're sort of going, well, if I get them to do that, they also need to be aware of this, this, in this art.
00:49:33:21 - 00:49:41:12
Chris
You know what? I'll just do it myself. Yeah. And it's not meant as a control freak way. So to gradually step away is quite a big step, isn't it? Yeah.
00:49:41:12 - 00:49:46:24
Mike
And that's it. And some people go, I just can't do it. Okay. That's fine. That's. But that's what that's the.
00:49:46:24 - 00:49:47:15
Chris
No buy limit.
00:49:47:15 - 00:49:54:24
Mike
That's your limit. The bounds of your are. Yeah. And others are going to walk away from it today. I'll let them run it. I don't want to be involved.
00:49:54:24 - 00:50:21:27
Chris
And I think there's a natural evolution on that because I'm getting there to that going. No, no, no, I now get it is that I need to get the key pieces. And it might actually but it's not just one. There might need to be more than one piece for the and working in conjunction for it to work. And so start thinking about what that structure needs to look like, what those people need to bring to the table and learn like, and you build it so that you're able to then demonstrate, look, I haven't been in for weeks or whatever.
00:50:22:04 - 00:50:32:07
Chris
Yeah, it's still going. It's still fun. It's still growing. It's still working. And that has to become a key tactic to making it a sellable item.
00:50:32:07 - 00:50:53:11
Mike
That's it. And again, that's when you've got multiple staff in the business that are doing it is more it's not a one man band, one one person business. So it and that and it gives therefore it gives the availability to have these managers in the senior team. And the ones that will make have got the confidence, the experience to make a decision on someone else's behalf.
00:50:53:13 - 00:51:14:11
Mike
And I think that's that's what often happens. You get get people in who won't make a decision because a word of a getting it wrong will be upset in the boss or the person there. Yeah. Whereas other people come in and go, oh, I'm just I've got the confidence to make the decision and deal with the consequences if it happens to be wrong, because sometimes it is wrong and it happens and you just got to roll with it.
00:51:14:13 - 00:51:17:21
Mike
But that's part of the joy of, yeah, the build in it.
00:51:17:27 - 00:51:52:15
Chris
And I think there's a lot to be said. I mean, I've seen firsthand is is to empower the team is is really powerful really, really in general before you even get to that stage, it's really powerful. For, for them, for the business and everything else. And even if it transpires that selling isn't the ultimate outcome, doesn't become the outcome, it means that actually, even if you you keep it going, the you're not having to be the one that's doing absolutely everything.
00:51:52:15 - 00:52:12:07
Chris
And again, I'm speaking from experience. When you build a company from scratch, you do everything. You have no choice. And then gradually it's like, I don't want to be doing everything. So even if the sale doesn't become the outcome, you're still making it a better situation for you as the business owner whilst pushing you towards that possibility at the same time.
00:52:12:09 - 00:52:35:02
Chris
Yeah, so I think that that's a no brainer tactic. If you can go that route, do it no matter what. Yeah, gradually over time, whatever you know works. I mean I know somebody that is is actually going more to the, to the goal of, becoming employee owned. And that's their exit. They're not interested in doing a, you know, by my company.
00:52:35:02 - 00:52:41:01
Chris
There it is. It will be gradually that it becomes employee owned. Well, they still need to be extracting them from it more and more.
00:52:41:01 - 00:52:48:29
Mike
Yeah. Because they need to have the staff the employee's the that team need to have the confidence and the experience to be able to run it themselves when you're not there.
00:52:49:03 - 00:53:10:02
Chris
Absolutely. And I think that there's a mindset shift. We were talking about how most businesses started because they're an expert on something or whatever it is, and they want to keep doing it. And it's like, look, just because you're not the one getting your hands dirty every single day, you working on it. The fact that you've not only an expert but you've done it, you've built this up.
00:53:10:05 - 00:53:29:16
Chris
You are the best person to be able to to lead without getting your hands dirty every, every day anymore. And so take pride in not just go through a, a mind shift on it and it still means that if you suddenly need to guess what, you can suddenly drop in there. If you need to be part of the team and then but back up again.
00:53:29:16 - 00:53:31:10
Chris
And I think there's a an interesting.
00:53:31:15 - 00:53:41:16
Mike
Yeah, there's, there's a lot of psychology on the, of the person themselves whether it works or not. Some people fight for it but actually characteristically struggle to do it.
00:53:41:20 - 00:53:48:17
Chris
Yeah. And I get that, I get that. But I think age alone makes you kind of go, yeah, you know what? I'm tired.
00:53:48:17 - 00:53:49:04
Mike
Now.
00:53:49:06 - 00:54:06:27
Chris
I'm tired. I need to do this and still take great pride. Is it was that knowledge and that belief and that risk taking at the beginning that has created this and then afforded you to be in that position? You know, you did we do is business owners take huge risks, not just at the beginning but at different stages through it.
00:54:06:27 - 00:54:25:09
Chris
So it's like you've earned that, right? Enjoy it. Then if you get to sell it, happy days. Even more aware rewards in return for we get emotional on this one. I'm going to bring it down with a massive claim. Is there is a, I was gonna say a word. It's two words, a phrase due diligence.
00:54:25:12 - 00:54:26:11
Mike
00:54:26:13 - 00:54:33:06
Chris
You put a big head, prepare for due diligence. It's that's the less glamorous side of this whole process, isn't it?
00:54:33:06 - 00:54:54:17
Mike
Yeah. Ian uses quite a funny phrase. Is that you go like there's a nice little box. Yeah. Then you're going to buy 100 gram for that box. I'm going to show you what's in your behind program. What to buy is not gonna have any confidence. No, but there seems to be. I'm trying to help the client buy a business at the minute, and it's it's a similar thing to going.
00:54:54:18 - 00:55:03:27
Mike
Yeah, I want you to pay to be able to look in the box. Before what? Before we do the due diligence to check what you're saying. You're selling? That doesn't really work.
00:55:03:29 - 00:55:06:22
Chris
What does that ring? Alarm bells that they're trying to get you to do that.
00:55:06:25 - 00:55:25:02
Mike
And again, so then you're looking at the people. So sometimes it's like a cultural thing. Sometimes it's, it's that they want the commitment that actually you looking inside it and then giving all the, all the, all the confident things, confidential details. Yeah. Is for someone who's committed. So it's like a kind of commitment fee.
00:55:25:05 - 00:55:26:22
Chris
So but then no you go first. No.
00:55:26:25 - 00:55:46:29
Mike
Yeah. So you got this. You check it in like a oh there's a oh there's a wicked video I love watching which is shown. The box. Sure. Karen. A box that comes up on Instagram probably once every 2 or 3 weeks. And I'll sit and watch the whole thing because is the best. But it's it's that sort of thing.
00:55:47:02 - 00:56:06:20
Mike
Yeah. Are you going to pay for the book I've got currently? You're going to buy it. It's a no. That's a lot of money. Just a greedy but like that's that's a scenario. So if you but if you've already if we're looking at selling a business, if you've already gathered all that info, you've got a nice tidy QuickBooks, Xero, sage QuickBooks, Xero.
00:56:06:22 - 00:56:25:06
Mike
And all the other details. And you've got the contracts and you've got all that there and so on comes on, on. I have a look at the business to see whether this piece of paper that you said will make this amount of money is real. And you go, there you go. I've got nothing to hide. There's all the details and someone looking at it, it's going to go, well, they got they got more confident.
00:56:25:06 - 00:56:41:17
Mike
They're going to pay more or they're going to be happy to pay over that price. Whereas if go to and go so it says say 100 grand. But I can see on this bit you make about 20 grand, but then you spend on there you've got this. Maybe that's in now what date does that that contract relate to.
00:56:41:17 - 00:56:58:00
Mike
You've recognized it here, but that looks like it's another six months worth of income that, you lose confidence and you go, know what? I'm going to back away. It feels like when you put in quite a bit of money on the line and commitment to it, you go through what it does. I don't feel comfortable. I'm not going to do it.
00:56:58:03 - 00:57:06:18
Mike
Yeah. So if you can, in the time shaping up a business and shape up and have all the backing info for it, people can be happy to to look at it.
00:57:06:18 - 00:57:28:13
Chris
And if it's a given and you said that, you turn that around. They say it right. Put yourself in a position, how would you feel? And I think that's really useful. And some of the examples of messy due diligence i.e. incomplete records, unexplained issues, poorly defined procedures. Now this interested me is not always financial, is it? I like this a lot.
00:57:28:13 - 00:57:35:10
Chris
Poorly defined procedure. So it might not be poor procedures, but not very well defined.
00:57:35:17 - 00:57:36:26
Mike
No one can explain what they are.
00:57:37:00 - 00:57:59:02
Chris
I'm bad at it and I think all businesses fall into this is that you get so busy doing it that you kind of go, we all know what we're doing and we're all doing it. But no, they're not written down anywhere. And I try we keep trying to do this internally. Go right. If we had someone join tomorrow, is there something they could look at to remind themselves or to understand it or whatever?
00:57:59:04 - 00:58:05:26
Chris
And this I had never thought about that being important for the sale of a business. But it has to be, doesn't it?
00:58:05:26 - 00:58:25:13
Mike
Because again, it goes back to that the same bit. I keep a German of confidence in buying it. If someone can take it over and see how it works and have confidence that they can continue the business activities. Exactly. I was it was a build up, a great name, a great client base, a great reputation. Then they're going to go, yes, I can do it.
00:58:25:15 - 00:58:42:20
Mike
If they're like, looks like we're going to blag it for for a couple of months on takeover, I've probably going to lose some clients killing going to get it wrong because I don't know what it is. We're like, I know what we're providing gas engineering services or something like that. Plumbing. So but I don't quite get who the customers are, where the jobs are.
00:58:42:22 - 00:59:03:03
Mike
And that client that we bought a business for last year had that, that issue. We they thought they could work out the processes because there wasn't anything written down. Six months later, there's still chaos. And where what how the order process were. You just can't quite get to grips with it because it's it's role in this role in and it wasn't there and that was people on the basis that it should be okay.
00:59:03:06 - 00:59:06:06
Mike
But but it wasn't
00:59:06:09 - 00:59:20:15
Chris
And that can include that you look at it and go, they procedures are bonkers. I can improve that. And and I think I've, I've heard that a lot. Where they go, we can increase efficiency. We can reduce costs and therefore this. But you ain't going to put that on the table. You feel the buyer.
00:59:20:16 - 00:59:26:28
Mike
But that's your bonus for for making the change. You're not going to pay the seller for something that you're going to improve on.
00:59:27:00 - 00:59:27:20
Chris
Absolutely.
00:59:27:20 - 00:59:28:28
Mike
So and again you're.
00:59:28:28 - 00:59:30:13
Chris
Bringing your skills to the table.
00:59:30:13 - 00:59:48:22
Mike
Then and the expectation then. So it's like when a seller goes oh yeah, if you had done that you could if you had taken that, business activity, you could have made another 50 grand. Yes. But you didn't. I'm going to take that risk. So I get the reward. You don't get to be paid for that. Absolutely. And it's getting that understanding the selling of good actually.
00:59:48:22 - 00:59:54:16
Mike
Would, would, would you have bought that. Would you have paid for that potential. What if. Yeah, you wouldn't.
00:59:54:16 - 00:59:56:28
Chris
Know. So I don't know I.
00:59:57:00 - 00:59:58:07
Mike
Expect it on sale.
00:59:58:09 - 01:00:19:04
Chris
Another interesting point on due diligence. Final point I think on due diligence is and this was interesting, it's a two way process is make sure you understand about your buyer. Are they right for your business? Are they capable of getting the funds to buy your business, and in what way? Because you talked about the different ways it can happen.
01:00:19:06 - 01:00:41:17
Chris
And do they have the expertise to run it? There was an interesting one on that one. Do they have the expertise to run the business? Is there not a case of I'm going to be ruthless for a second, because I know one of the answers on this. Do I care? Exactly. You're selling and you're out. Now, I don't mean that when I say that, because I know there is is always, not always.
01:00:41:22 - 01:00:51:21
Chris
Most of the time, my romantic side is that you want to look after the people you're leaving behind. So I guess you do want to understand that, but not to the nth degree. You probably wouldn't.
01:00:51:21 - 01:01:10:10
Mike
That. But then it comes down to some. Like what it. So let's you, me and my wife getting the toy shop. So the person who, the couple that were retired from that had a couple of people knock on the door to want to buy it, but they came to us because they wanted us to run it, because they felt that we were them.
01:01:10:13 - 01:01:23:03
Mike
So when they were the same age, and they wanted us to run it because they trusted that we would run it. And his part and thing is, he left one evening, fronted after a few beers, was look after my baby. All right. So actually.
01:01:23:03 - 01:01:24:13
Chris
Though we do that with houses as.
01:01:24:13 - 01:01:40:08
Mike
Well, it was a big emotional thing for him that it wasn't just selling for money that was part of it, but actually it was. He wanted to be able to do it to to drive by and see the shop. Still great. You still see that the kids were going into this toy shop right? And it's the same with other businesses.
01:01:40:08 - 01:02:02:27
Mike
You build it up, you've got staff in there. You want to know that actually those staff that have been loyal to you for, say, 20 years are going to be looked after afterwards. So there is that they don't. And unfortunately again, some people will give a good spiel and I've unfortunately seen it with with someone where they gave a good spiel and they didn't run it great and it went to shit.
01:02:03:00 - 01:02:08:17
Mike
But you can only do so much as you can at the start. You can't have hindsight as long as, you know, as long as at the time, you know.
01:02:08:20 - 01:02:09:25
Chris
That's why you do then have to.
01:02:09:25 - 01:02:28:23
Mike
Disconnect. That's it. But the reason for doing so, if you've agreed on a deferred payment terms. So you go, I'm going to be paid over three years, right? Your trust in the person's buying is going to either run this business successfully for three years or has sufficient funding capabilities that they you can you can still call on them.
01:02:28:23 - 01:02:31:15
Mike
We will get it to to pay that that that you.
01:02:31:15 - 01:02:42:28
Chris
Know, that's an interesting point because that does make the the expertise to run the business becomes important, even from a selfish perspective. Is that going are they going to keep this going and have the money there too?
01:02:43:06 - 01:03:11:23
Mike
I seen I unfortunately when I was in training, I was at the time my boss was helping the business in Bristol sell, sold for several million pounds, got the first payment which was money in the bank at the time. Second payment in. Didn't realize that came from factor in the debts. Third payment never arrived. Yeah. And that person that, lost two two stage payments of quite large sums of money.
01:03:11:25 - 01:03:22:27
Mike
But he never looked back. He did. All the dukes, gave up all the information, sold a beautiful business making a considerable amount of money, but never went and check them out.
01:03:22:29 - 01:03:35:09
Chris
Which I've seen another one where, as well as money included shares and suddenly something, I think a fraud investigation happened. That company went pop, and suddenly those shares were worthless.
01:03:35:12 - 01:03:55:07
Mike
Exactly. And that's the expression of a one in the hands. Better than two in the bush, right? Yeah, yeah. So you might go the when pay me 150 grand today or I might get 200 grand, but it's spread over two years. Which one gives you the most confidence? Some people might go, I just want whatever I got today is what I've got.
01:03:55:07 - 01:04:08:19
Mike
Yeah. I don't want to be sat there going, I'm not going to get a payment. I know, because again, someone was looking at so recently he's ended up retiring. But I was like, but you could set it up to get paid over for like, I don't know if he's going to be good for it.
01:04:08:21 - 01:04:11:15
Chris
How do you do due diligence.
01:04:11:18 - 01:04:33:12
Mike
So we've got we've obviously got the audit department here that can go in, and do a formal due diligence, kind of like an audit where they're going through checking the processes, checking, the figures presented or accurate. And so as a, as a part of a like kind of like an audit process, but a just a different, slightly tailored, different approach.
01:04:33:14 - 01:04:47:24
Mike
We can go in if we're buying that is we're acting for the buyer and we can go in and go right. Let's see it. The sit in the office, let's go through some stuff. Let's get a an idea that we can go this what they're saying that they made. Yeah. Looks good to us. Give or take a little bit.
01:04:47:27 - 01:04:53:14
Mike
That looks absolutely fine. And then again what's that doing? It's just giving confidence.
01:04:53:16 - 01:05:13:06
Chris
And it's from our representatives, not just theirs. Yeah. What about, if you're the seller and you suddenly what we've just touched on today and what I want to do due diligence on the buyer, and we're talking about things like, have they got access to the funds? Are they reputable? Are they?
01:05:13:06 - 01:05:24:14
Mike
Right. So a lot of what happens now is, okay, so you want to come and buy my business. Let's go for a coffee. Let's have a chat. Let me see that same guy. Let's see before I even open up this ball.
01:05:24:14 - 01:05:25:26
Chris
So there is a gut feel. Yeah.
01:05:26:03 - 01:05:39:12
Mike
And you give it to him. Go away. So? So who are you and what are you doing? Why do you want to buy my business? What? What's your background? Okay. What are you doing? What businesses you got what? And then you go and look at the businesses naturally. And companies house and see and try and get a feel.
01:05:39:12 - 01:06:07:29
Mike
And you look at it is, you know, even if you've got, guarantees and stuff like that, a lot of it is only a piece of paper, which is the same as it is and it's legally binding. However, you've got to have the money to pay someone to use this piece of paper to get your money right. So if you go to that's the same as a trademark, if you've got a trademark and it's wonderful, and I got this lovely copyright trademark, but some big lawyer comes over and goes, we're doing this.
01:06:08:02 - 01:06:25:21
Mike
You've got you need to have the capital to be able to fight it. You'll win it because you've got the trademark, but you've got to have the capital to fight it. And if you don't, then it's worthless, right? Yeah. So not saying not get legalized. Christ. No, but it's it. You've got it. You've got it's it's only ever got filled when you sign someone out.
01:06:25:27 - 01:06:39:25
Mike
But do do your is an interview process for them to come in and have a look inside this bottle. Can you go. You want to go look at my business, right? I want to see. I want to see the watch your eyes. I want to see what it is you do that makes me feel comfortable. You're going to be able to run this business.
01:06:39:26 - 01:06:54:05
Mike
Yeah. No, that might be over. Two meetings to make sure look like a double agent of you. For an employee. It might be that to make sure. It might be actually you have a coffee one day and you go, can I come over to run your business? I'll come back and I'll come and see how you run a business.
01:06:54:12 - 01:06:56:17
Mike
And if you go into that business and it's a horror show.
01:06:56:18 - 01:06:59:01
Chris
Yeah, yeah, well, you're right.
01:06:59:03 - 01:07:04:01
Mike
Or if you go in there and you see, like a slick business is being run and he's like, yeah. So I met him for a week.
01:07:04:01 - 01:07:27:03
Chris
Which is got to be a big reason for why a lot of the acquisitions are from people you already know. Yeah. In one way or another, things that get that, I get that. Okay. Final point, and this is an obvious loop back to, to why it's an episode for yourselves is how would we work with, say, you guys as our accountants in this?
01:07:27:06 - 01:07:46:16
Mike
Well, as part of like the big the bit that we love doing most with, with clients is working with you. So if we're working with you every quarter, every three months and we were doing this planning stage meeting my way, we always talk about it like we're planning. We're looking forward. We're looking at what you're aiming for. If we're in that process with you and we're on.
01:07:46:18 - 01:07:58:20
Mike
We've been doing this for a couple of years. We would have worked out what you're doing with the business, why you're doing it, and then we'll be building towards it. And it might be that you go out in ten years time. I want to be able to do this and this and this retire. The kid's going to go to uni.
01:07:58:20 - 01:08:19:03
Mike
I want to go travel. And so I want to be able to retire with this level of money. Right. Well, that's the then whole process that we're building up for that. So it will be in the meetings going right. So we need to get the turnover up to £4 million this year. We're at three. So what we get what what can we come up with together to drum up that extra work.
01:08:19:03 - 01:08:37:12
Mike
Just because otherwise you're not going to make where you want to get to. And so we'll keep doing that on these these quarterly meetings. And I met another client on Tuesday wants to do a similar thing, wants to have this this these meetings so that it brings the focus back from running a running like in the business to going back.
01:08:37:12 - 01:08:50:01
Mike
And just even if it's every three months just going right up to down two hours, I'm going to work on my business, I'm going to do it, and I'm going to check that this point in the right direction. And that's what we're doing, and that's what we're facilitating this, those meetings to help that growth.
01:08:50:03 - 01:09:14:25
Chris
Yeah. Because you interpret the reports and figures better and you've you can see where we need to potentially go. Also, I know that it's customized management accounts conduct a pre due diligence audit. And I noticed there was a comment to even potentially find the right buyer. Can I add another one to this. Is that because I know you've done this is that it's not always weird.
01:09:14:25 - 01:09:28:12
Chris
Obviously talking about a sale, but it could also be a merger. Yes, I know that you've been involved where you kind of go, you guys come together. This is going to be perfect for you. You were able to get involved in that fishing exercises. Yeah.
01:09:28:12 - 01:09:46:14
Mike
And naturally was to work with clients I want to work with. So if I can see one person can work with another, one can help them out. I'll talk to them both. No names. Base is to say, would you want to have a conversation with somebody who does this, this and this? And if you've got if they go, no, that's fine.
01:09:46:16 - 01:09:52:05
Mike
But if they go, yeah, actually, and you create a situation, then I've helped a bit. I helped client.
01:09:52:05 - 01:09:54:16
Chris
Out. Who knew you were going to become a dating app?
01:09:54:17 - 01:09:58:03
Mike
And I said, I don't know quite how well it's working.
01:09:58:05 - 01:10:25:06
Chris
But. So in essence said, I mean, this has been a really meaty one. In essence, we've covered a lot of areas for us to be considering in terms of our planning a lot sooner than we might think is the best advice. Because you start getting things in place, you start making goals of of what the business needs to look like, whether that's from a structure, whether it's from retainer durations, whether it's, you know, whatever, whatever.
01:10:25:06 - 01:10:56:26
Chris
There's all these things, start thinking about it. And even if you end up deciding not to be selling it, it's still going to create or, a potentially more attractive work environment for yourself. Get it? But it doesn't just revolve around you that, you know, if you're ill and there's a problem or those kind of things. And the best one and obviously the reason we talked about this is come and speak to you guys and that can be really early, is what I picked out from those comments there is that I have no idea, Mike.
01:10:56:26 - 01:11:07:10
Chris
I think sometimes in the future I want to be selling. You can then always have that in the back of your mind in terms of our accounts and and our plans and all those kind of things.
01:11:07:17 - 01:11:26:18
Mike
Yeah, exactly. There's sometimes, that process is, indirect. I would have picked up a little bit from a conversation to understand what you may not be going rather than going right. In five years time. What do you want to do? I don't know, okay. But we'll build to it. We'll build to it in another way, because that question itself is quite scary.
01:11:26:18 - 01:11:43:05
Mike
Some people, some people don't want to own up to what it is they're actually inevitably want to do or not. Some people are afraid of actually making money, and selling out is, a dirty word. It's not because you could be building up more protection for your staff, if that you go. Actually, I can only take it to this one and sell it.
01:11:43:07 - 01:12:05:09
Mike
And that's actually part of the view is protecting the staff is having a bit more stability. And so it's just going through those conversations and start just sort of planting seeds and understanding what, what works for you, not what works in general, is just what's working for you. Yeah. And I hope that in the approach that we do that we're tailoring that all the time to what it is.
01:12:05:11 - 01:12:16:23
Mike
I won't go in with a rule like a attitude of just do this, understand that it's not. It's more this two way kind of conversation. Let's work together on what it is we're aiming for.
01:12:16:25 - 01:12:23:04
Chris
It makes sense. I think it's been brilliant, Mike. Appreciate it. You know that I love these because I learn as we do.
01:12:23:06 - 01:12:26:06
Mike
So I send my. Yeah, yeah.
01:12:26:08 - 01:12:46:29
Chris
Yeah. Absolutely brilliant. If anybody has any questions off the back of this, please let us know. I know that this has been a long one. There's every chance that we will split these out as well into sort of mid form. So make sure you catch all of the parts to this, but drop a line, get in touch, start thinking about it.
01:12:47:02 - 01:13:09:26
Chris
Even if you're not sure yet, it's well worth the conversation. Thank you very much for doing this. Appreciate it. Oh, Pete. Co.Uk, and you'll find all the contact details, plenty of information next episode. I believe it's going to be episode 21. How much can you actually earn tax free or tax efficiently? It's a tongue in cheek episode within the rule book.
01:13:09:27 - 01:13:25:13
Chris
Within the rule. But yeah, totally legally, tongue in cheek. Look, various legal options. Absolutely. And it's quite a fun way to do it because we are working hard, giving a lot away. But it's about there there are ways to do this that that we might forget.
01:13:25:16 - 01:13:29:16
Mike
So if we can get to 50 grand, you can earn tax free. Can I say if we can give it a go.
01:13:29:19 - 01:13:46:25
Chris
Do let's do it. So don't miss that one. Episode 21 will be the next one. And that's what we we're on about. But, get in touch. And if there's any other topics that you'd like us to cover, please do drop us a line. We can get other experts involved. Maybe you're the expert that you'd like to come on as a guest, and it will be good to add that information.
01:13:46:25 - 01:13:56:10
Chris
Please do drop Michael myself. A line, and, you know, we'll look to see what it is. But for now, from Optimum Live. Thanks for your time. Cheers. Cheers.