Selling my Business - advice please
Discussion
Brief history, I bought the company I worked for (14 years) on the 1st February 2020 for £1.5M this sum was "lent" to me interest free by the ex owners of the company and was repayable at the rate of £75K per quarter. The ex owners kept the buildings and I rent them from their pension fund company at £40K PA, I have a 10 year lease with a rent review next February.
I am the sole Director, we have no loans other than some £22K left to pay for the BBL which I took as a very cheap overdraft facility - this has never been used.
Despite Covid happening a mere 6 weeks later, due to the nature of the goods we sell as well as distribute, the business actually increased its turnover and profitability, and still continues to do so, with a net profit of just over £100K for January and February this year alone.
Fast forward to today and I have just £300K left to pay, but in fact I am accruing an additional £75K to pay the debit off on 31st October 2024.
The business has a turnover of circa £2.4M with a net profit of around the £500K area, the £300K PA debit to the ex owners comes from this net profit.
Just last week I was approached by one of the ex owners who informed me that they were considering selling the building and asked me if I would be interested in buying it, as of yet for an undisclosed amount which of course I would value in due course, my gut feeling is somewhere around the £500K to £600K.
If I look purely at the money, from November this year I will have an additional £300K per annum, and if I bought the premises an additional £40K per annum.
I would need to buy the buildings with a loan of some description (I have already talked to my bank) however in theory I would have £340K per annum "spare" to service debit if required.
My dilemma is, at 63 I would like to sell the business, my partner has recently been having treatment for cancer and I would like to go to Spain for the rest of our time together, which could be of course many years or not. I already have an apartment in Spain.
So my question to those that are far more knowledgeable than me is, do I buy the buildings or not - what are the implications of selling a business that has a loan outstanding for those buildings, will it make the business more or less attractive to a potential purchaser. What if it takes years to sell, I could have bought the buildings and paid the loan off, thus potential making the business worth more.
Up until last week my plans were to sell the business as soon as the £1.5M is repaid, so technically 1st November 2024 onwards.
I am the sole Director, we have no loans other than some £22K left to pay for the BBL which I took as a very cheap overdraft facility - this has never been used.
Despite Covid happening a mere 6 weeks later, due to the nature of the goods we sell as well as distribute, the business actually increased its turnover and profitability, and still continues to do so, with a net profit of just over £100K for January and February this year alone.
Fast forward to today and I have just £300K left to pay, but in fact I am accruing an additional £75K to pay the debit off on 31st October 2024.
The business has a turnover of circa £2.4M with a net profit of around the £500K area, the £300K PA debit to the ex owners comes from this net profit.
Just last week I was approached by one of the ex owners who informed me that they were considering selling the building and asked me if I would be interested in buying it, as of yet for an undisclosed amount which of course I would value in due course, my gut feeling is somewhere around the £500K to £600K.
If I look purely at the money, from November this year I will have an additional £300K per annum, and if I bought the premises an additional £40K per annum.
I would need to buy the buildings with a loan of some description (I have already talked to my bank) however in theory I would have £340K per annum "spare" to service debit if required.
My dilemma is, at 63 I would like to sell the business, my partner has recently been having treatment for cancer and I would like to go to Spain for the rest of our time together, which could be of course many years or not. I already have an apartment in Spain.
So my question to those that are far more knowledgeable than me is, do I buy the buildings or not - what are the implications of selling a business that has a loan outstanding for those buildings, will it make the business more or less attractive to a potential purchaser. What if it takes years to sell, I could have bought the buildings and paid the loan off, thus potential making the business worth more.
Up until last week my plans were to sell the business as soon as the £1.5M is repaid, so technically 1st November 2024 onwards.
Are these specific buildings integral to the operation of this particular business?
Or is it just a bog standard office / warehouse / generic business building?
In either case, if the numbers stack up I would personally be tempted to do what the old owners did and buy it personally/in another ltd co, then lease it back to the business whether to yourself or the new owners.
If it's just a standard office or similar, I don't think you'd be adding much to the value of the biz beyond what it would be worth on the open market (i.e. there's probably not much additional value bundling them together).
Or is it just a bog standard office / warehouse / generic business building?
In either case, if the numbers stack up I would personally be tempted to do what the old owners did and buy it personally/in another ltd co, then lease it back to the business whether to yourself or the new owners.
If it's just a standard office or similar, I don't think you'd be adding much to the value of the biz beyond what it would be worth on the open market (i.e. there's probably not much additional value bundling them together).
Buildings aren't necessarily specific to the business, however we manipulate glass amongst other things, and we do have a large BOC oxygen tank on site.
Its an old Victorian station house with factory space added on in the late 60's.
With regards to growing during Covid, that was very easy we make scientific equipment and distribute disinfectants, couldn't stop the phone from ringing in the early days of C19.
Its an old Victorian station house with factory space added on in the late 60's.
With regards to growing during Covid, that was very easy we make scientific equipment and distribute disinfectants, couldn't stop the phone from ringing in the early days of C19.
I think that the best thing to do would be to get a formal valuation on the property based on your use of it and as another use - and certainly to include a 90 day sale value - which May be the one a bank would use.
Also speak with your accountant and possibly your solicitor as well for advice- need to manage the tax position should you sell later in the year either with our without the property.
Is there anyone in the business that you could sell it to in the same way as you bought it?
Also speak with your accountant and possibly your solicitor as well for advice- need to manage the tax position should you sell later in the year either with our without the property.
Is there anyone in the business that you could sell it to in the same way as you bought it?
It's unclear if you're intending to buy the building personally or for it to become a business asset?
If the former, consider the implications of later selling the business and the buyer relocating operations leaving you with an empty building to deal with. Is it worth the potential hassle?
If it's the latter it will likely impact the business value and potentially saleability of the business. As someone else mentioned, could you potentially sell to the existing management team?
How saleable is the building if the current owners decide to sell and you decline the option? What could the implications be?
To be honest I don't think there's a right/wrong answer here, it's largely going to come down to whatever is going to work best for you long term.
If the former, consider the implications of later selling the business and the buyer relocating operations leaving you with an empty building to deal with. Is it worth the potential hassle?
If it's the latter it will likely impact the business value and potentially saleability of the business. As someone else mentioned, could you potentially sell to the existing management team?
How saleable is the building if the current owners decide to sell and you decline the option? What could the implications be?
To be honest I don't think there's a right/wrong answer here, it's largely going to come down to whatever is going to work best for you long term.
I would buy the buildings through the business so it would appear as an asset on the accounts, however I don't know really which is the best option to buy or not to buy, if I had the option to buy the premises when I took the company over I would have, however now I'm not so sure as my real aim is to sell up.
I have a 10 year lease, without a get out clause, so if someone else buys the buildings I would be their tenant until 31st Jan 2030, I have no problem with this arrangement, the real issue is do I buy or not.
In theory if the loan to buy was say £500K I could repay that in 2 years, but I guess banks would not be too keen on such a short repayment period as they would earn very little from me.
I have a 10 year lease, without a get out clause, so if someone else buys the buildings I would be their tenant until 31st Jan 2030, I have no problem with this arrangement, the real issue is do I buy or not.
In theory if the loan to buy was say £500K I could repay that in 2 years, but I guess banks would not be too keen on such a short repayment period as they would earn very little from me.
I’d suggest you are more likely to find a buyer for your business if it pays £40k rent per year versus a buyer having to pay an extra £1/2m on the purchase price to cover the property purchase.
Owning the building the business is operated out of can have a few drawbacks (not only higher purchase price) but also limits anyone wishing to relocate or merge operations with another.
Owning the building the business is operated out of can have a few drawbacks (not only higher purchase price) but also limits anyone wishing to relocate or merge operations with another.
Edited by Wilmslowboy on Tuesday 19th March 06:26
wilksy61 said:
In theory if the loan to buy was say £500K I could repay that in 2 years, but I guess banks would not be too keen on such a short repayment period as they would earn very little from me.
If you're considering selling the business look at borrowing over a longer timescale (say 10-15 years) so the impact on profits isn't too great and the loan is a manageable liability.You've advised you're 63 and would like to sell for personal reasons. If I was your accountant, I'd be telling you to put it on the market now. Life is (IMO) too short. The fact you still owe some money to the previous owners doesn't matter and can be adjusted for in the sale process.
Get your accountant to (unless they can do it for you) get you in touch with a good selling specialist. And I don't mean one of those cold-calling firms who hawk your business out.
As it stands, you will appeal to those wanting the business but not the property. But there is the option if they did want the property. More often than not, buyers don't want to be stuck with property for a number of reasons. Return on capital is key for them.
There are many companies out there looking to add turnover to their businesses and this sounds like it would sell well.
Get your accountant to (unless they can do it for you) get you in touch with a good selling specialist. And I don't mean one of those cold-calling firms who hawk your business out.
As it stands, you will appeal to those wanting the business but not the property. But there is the option if they did want the property. More often than not, buyers don't want to be stuck with property for a number of reasons. Return on capital is key for them.
There are many companies out there looking to add turnover to their businesses and this sounds like it would sell well.
wilksy61 said:
Brief history, I bought the company I worked for (14 years) on the 1st February 2020..
……
Up until last week my plans were to sell the business as soon as the £1.5M is repaid, so technically 1st November 2024 onwards.
It’s sounds like you made a great success of the businesses, and hopefully you and your partner get to enjoy a long retirement in Spain.……
Up until last week my plans were to sell the business as soon as the £1.5M is repaid, so technically 1st November 2024 onwards.
A couple of points, how much you owe the previous owner will have little or no impact on the price your business will sell for, so don’t worry about paying it off before selling it.
Two items that might concern prospective buyers however are, the potential outcome of the rent review next Feb and how and if the business will operate without your 18 years of experience.
As suggested by the previous poster, start the mkting asap.
I have sold a few businesses over the years and my advice, based on your age and circumstances, would be not to buy the building.
If you were younger and not quite so keen to exit, the advice would be different.
Whilst the buildings would be an asset, you have a ten year lease - which is an asset in and of itself.
Your business will be most likely valued on a multiple of profits (rather than NAV), I wouldn't seek to reduce those profits by buying the property.
It's also adding a complication which might put some potential buyers off - if I looked at you as an acquisition target for absorption into my business, having a building to deal with is unattractive.
Do you have a list of maybe 3 companies who might buy you? Would they need your building? Does this building have scope for expansion of the business?
If you were younger and not quite so keen to exit, the advice would be different.
Whilst the buildings would be an asset, you have a ten year lease - which is an asset in and of itself.
Your business will be most likely valued on a multiple of profits (rather than NAV), I wouldn't seek to reduce those profits by buying the property.
It's also adding a complication which might put some potential buyers off - if I looked at you as an acquisition target for absorption into my business, having a building to deal with is unattractive.
Do you have a list of maybe 3 companies who might buy you? Would they need your building? Does this building have scope for expansion of the business?
Thanks for your replies, I'm of the same mind as well regarding not buying the buildings I just want some other inputs from like minded people.
With regards to the question of will the business still operate without my experience, the answer is yes it will, I disposed of a part of it that was far more labour intensive and most defiantly would have needed my experience last year.
The distribution side of the disinfectants is very simple and would almost run its self and the glass blowing again almost runs its self, as its the same items made month after month and very well established.
I also have a reasonably healthy cash in the bank and debtors are all paid on 30 days, unlike when I took it over and started with zero cash and just the January invoices as my incoming cash.
I think I will start the selling process very shortly and see what transpires, looking at the multiplies I guess a sale price of around the £2M should be achievable.
With regards to the question of will the business still operate without my experience, the answer is yes it will, I disposed of a part of it that was far more labour intensive and most defiantly would have needed my experience last year.
The distribution side of the disinfectants is very simple and would almost run its self and the glass blowing again almost runs its self, as its the same items made month after month and very well established.
I also have a reasonably healthy cash in the bank and debtors are all paid on 30 days, unlike when I took it over and started with zero cash and just the January invoices as my incoming cash.
I think I will start the selling process very shortly and see what transpires, looking at the multiplies I guess a sale price of around the £2M should be achievable.
wilksy61 said:
I also have a reasonably healthy cash in the bank and debtors are all paid on 30 days, unlike when I took it over and started with zero cash and just the January invoices as my incoming cash.
Leave the cash in the company's bank account - an acquirer will pay pound for pound as part of the sale consideration... take tax advice (obviously) but I only paid 10% CGT on a large cash balance.wilksy61 said:
Thanks for your replies, I'm of the same mind as well regarding not buying the buildings I just want some other inputs from like minded people.
With regards to the question of will the business still operate without my experience, the answer is yes it will, I disposed of a part of it that was far more labour intensive and most defiantly would have needed my experience last year.
The distribution side of the disinfectants is very simple and would almost run its self and the glass blowing again almost runs its self, as its the same items made month after month and very well established.
I also have a reasonably healthy cash in the bank and debtors are all paid on 30 days, unlike when I took it over and started with zero cash and just the January invoices as my incoming cash.
I think I will start the selling process very shortly and see what transpires, looking at the multiplies I guess a sale price of around the £2M should be achievable.
If the 500k profit is sustainable, you are likely to get a lot more than that, plus a chunk of the cash in bankWith regards to the question of will the business still operate without my experience, the answer is yes it will, I disposed of a part of it that was far more labour intensive and most defiantly would have needed my experience last year.
The distribution side of the disinfectants is very simple and would almost run its self and the glass blowing again almost runs its self, as its the same items made month after month and very well established.
I also have a reasonably healthy cash in the bank and debtors are all paid on 30 days, unlike when I took it over and started with zero cash and just the January invoices as my incoming cash.
I think I will start the selling process very shortly and see what transpires, looking at the multiplies I guess a sale price of around the £2M should be achievable.
Unless the building is commercially critical then buying it seems counter productive at this stage, unless you would otherwise acquire it for your pension, it's unlikely at add value (the opposite in my professional experience).
If it would help, happy to get our team to give you a properly considered view off the back of an up to date balance sheet and P&L. Fwiw I co-founded Europe's first BCorps M&A advisory practice 4 years ago afterr 15 years of leading mid market business sales.l, so hopefully have some relevant experience.
If it would help, happy to get our team to give you a properly considered view off the back of an up to date balance sheet and P&L. Fwiw I co-founded Europe's first BCorps M&A advisory practice 4 years ago afterr 15 years of leading mid market business sales.l, so hopefully have some relevant experience.
dave123456 said:
Surely buying the property increases the profit? You remove rent from the p&l?
Valuation method would depend on industry.
Current rent Vs loan repayments? Plus the additional drag of having a property tied into the transaction?Valuation method would depend on industry.
Most valuations start with a multiple of profits - that multiple can vary based on quality of income, recurring revenues, all sorts of things. But it's a good place to start.
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