It’s a lot to do with horses!

The technical term to keep in mind when buying or selling a business is “horse trading”. That’s it in a nutshell. If you are selling you want to achieve the best price possible and if you are buying, you want to pay as little as possible. If you are selling the price you want to achieve may not necessarily be cash, It might be that part of the consideration is that your staff, who have supported you for so long, get a good deal or it may be that you give up some of the cash to avoid undue stress and hassle during the selling process.

But at the end of the day, it is plain and simply a horse trade. I know there are various ways of valuing a business, and these have their place. We have used many of them. They may colour your view on what you want to get out of the sale, and they may give an indication to the buyer of what they may need to offer.

Many years ago, I witnessed a business being sold for £1. A pound coin was actually handed over. The asset values probably exceeded £1M. The business was subsequently re-sold a few years later for well over a million pounds. The business valuations would never have indicated a price of £1. So, don’t get too hung up on business valuations in the real world.

So, why would you sell a £1m business for £1. Basically, the company behind the business just wanted “out”. It was clear that it should have been a profitable business, but it was failing to realise its potential. The management team did not have what it took to turn it around. It looked as though a significant amount of addition cash would need to be injected into the business and the people in control just did not want to play that game. So, they sold the business for £1 to a competitor who had the management team with the skills and experience and who turned it around within a very short time.

As far as the sellers were concerned, they perceived that this business have a negative value. But that was the value to them. In the hand of the buyers, it was a cash generator with a significant value.

This is just one example of why you should not rely solely on business valuations, no matter who has prepared them and whatever they may have cost.

Funnily enough we are seeing a growing level of activity in the mergers and acquisitions market. There are a number of reasons for this. Many businesses survived Covid but came out with depleted reserves and are now struggling to move ahead. The proprietors in some cases just decide to sell up. Even in the professional arena, many “older” accountants and lawyers are deciding that with all the changes to the tax system (MTD, quarterly reporting etc) and advances in technology, that now is a good time to get out. They are old dogs and have no interest in learning new tricks.

That means that if you want to grow your business, this could be a good time. There are people out there motivated to sell and if you have the desire, some cash experience  and the courage, you can use this time to good effect. Remember that you do not need to have cast to buy another business. You need some for the seller but not all of the price. Also, you do not need to go cap in hand to your bank, who may well say “no” anyway. There are ways!

We have just completed our fourth acquisition and we did it post Covid.

You can of course rely on organic growth and that is fine. In some ways it is actually better. But it will be slower. Organic growth is a lot like gardening. You prepare the ground, you plan, planting the seeds and then nurture the new growth. This in itself can be very satisfying but slow.

When you are in business, every day is a school day. There is always something new to learn or new situations to experience or problems to solve. Buying a business is no different. It is rare that everything goes according to plan. But if you have been in business for a while and assuming the acquisition is in the same sector, you will work it out because you have the experience and because you have no choice. But you will also be growing and becoming more resilient as a result, ready for the next acquisition.

Remember that you do not need to do these things alone. There are plenty of people out there who have done this before, either buying or selling, so tap into their experiences.

I know of a management consultant in Inverness, Emma Mitchell (Eris Business Services) who built up her own small business and sold it and now advises other small business owners on the tricks and techniques to help them develop and grow.

And of course, don’t forget about us. We have the bruises from multiple acquisitions, and we have the resources to support you whether that be through periods of organic growth or acquisitions.

We should perhaps get some bruise tattoos. “Been there done that got the T shirt” seems a bit old fashioned. Not old dogs yet and we need new tricks to learn.

If you want to carry on this discussion but you are not sure where to find us, please click here.

Alan E Long

The Long Partnership

07770 738770



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