I was asked by a prospective client, “Why should I hire another accountant to work with me on this transaction when my firm already employs a qualified accountant and retains a firm of auditors?”
It was a good question and probably one that many SME owners would ask under similar circumstances. I was pretty sure of the answer, but wanted to avoid the usual clichés, such as “you only sell your business once”, “you have to get it right first time” and “there is too much money at stake to take a chance on inexperienced advice”, however they are the main reasons why and they did form part of the response.
I explained that not all accountants are experienced in all matters. An accountancy qualification provides an excellent introduction to the world of business, but accountants tend to specialise like any other profession, and this is one of my key areas of expertise.
The owner in question knew that his in-house accountant did a great job of running the day-to-day finances of the business, handling the sale and purchase transactions, managing the payroll and producing monthly reports. He also looked after most other things relating to the administration of the business, such as property and insurance, but the owner also knew in his heart that his accountant had never sold a business before and had no idea what it entailed. He also knew his auditors were competent at producing year-end accounts and preparing his tax returns, but they had no direct experience of preparing a business for sale or making important presentations to maximise its sale value from prospective acquirers.
The owner had talked to his corporate finance advisor and had listened carefully to the advice offered – the extraordinary workload, the amount of detail, the intrusive due diligence that would examine every part of the business, the negotiation of terms with seasoned acquirers and the potential impact of all of these on his time, the day-to-day running of the business and how much he might get out of the transaction.
The bottom line was that the owner knew that he needed to strengthen his team for the duration of the project and that was the reason he and I were having the discussion.
He listened carefully whilst I gave him my estimate of the value of the business based on its current earnings and the sort of multiples he could expect from trade and private equity buyers.
I compared and contrasted the different acquisition rationale of trade buyers and private-equity buyers, and I talked about the process and timescales, including the possibility of an extended timescale if the acquirer needs more time to make certain, i.e. to get another month’s or quarter’s trading on the slate.
I also explained how the owner might secure more money through an earn-out if the business did better than expected and I highlighted what the potential acquirers would be looking for, i.e.
- the quality of earnings,
- the relationships with customers,
- the market potential,
- the possibility for vertical or horizontal expansion,
- the geographic reach,
- the white space around existing markets and sectors
- the strength of the business model,
- the size of the pipeline,
- the skills of the people,
- the integrity of the business processes,
- the control over cash management,
- the robustness of financial forecasts,
- the performance against budgets,
- the treatment of expenditure,
- the cash conversion of sales and profits,
- the level of investment required to sustain and grow the business
We discussed these at length and I felt comfortable that we were having a fruitful discussion about important aspects of his business and I sensed that he was reassured by what I said and how I could help him address these issues.
I also said that I had looked at the company’s website and noted job vacancies, details of contracts secured, strategies for expansion etc., and I asked how these were going. I explained that everything in the public domain needed to be verified, so that there were no inconsistencies and no empty promises – everything needed to withstand scrutiny.
The owner made meticulous notes throughout, after all – it was sound advice – and free!
Business owners are savvy people, they know that good advice is important and a trusted advisor is something very special.
However, returning to the story.
Did I get the job? Yes, I did.
Did he make a lot of money? Yes, he did. He is a very happy client!
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