FAQ

Below is a list of answers (A) to frequently asked questions (Q).

 

Q. The word Synergy?

 

A.  Synergy is defined by Wikidpedia as Synergy (from the Greek syn-ergo, συνεργός meaning working together) is the term used to describe a situation where the final outcome of a system is greater than the sum of its parts. A mutually advantageous conjunction where the whole is greater than the sum of the parts

 

Q. Who do Business Synergies help?

A. Business Synergies is geared to assist a wide range of business in the commercial, technical, agricultural and industrial sectors.  We are happy to work with a wide spectrum of businesses from Private Limited Companies through to large PLCs.

Q. Does my business need to be profitable to be of interest to a prospective purchaser?

A. Not necessarily - many businesses are bought for market position, customer bases or their technology. Being profitable helps but is not always essential.

 

Q. How Long will it Take to Sell My Business?

A. Typically it takes between 6 to 9 months to sell a business. However, we can accelerate this process by helping you to pre-prepare. Don't however try to rush or "railroad" through a sale - buyers will become suspicious that something is wrong.

Similarly don't be tempted to cut corners, hide facts or to accept unreasonable terms. If there are issues tell us and we can help you mitigate it in advance of the sale.

Q. What is EBIT and why is it often mentioned in business valuations?

A. EBIT is earnings before interest and tax. It is often used as part of the valuation process where a multiplication factor is applied to the EBIT to give an indication of valuation.

 

Q. Is my company too small?

A. Size is relative. Some companies wish to purchase a number of small businesses, others are looking for a single large purchase. Every business has its place and we can sometimes merge a number of smaller business to make them attractive to a larger entity.

Q. In my business we have not been drawing proper salaries, will this affect the saleability.

A. Certainly not, as any purchaser would expect the owners to be demonstrating good fiscal management. However, when calculating the EBIT you will have to agree to a figure that represents a reasonable salary that will be deducted from the EBIT for the purpose of valuation.

Q. What is an "earn out"?

A. This is very common in a business sale. Normal practice is to split the sale price up into two or more stages. The first stage is called the initial consideration and the second and subsequent stages are called the earn out. The earn out is normally based upon EBIT with a multiplication factor, a trigger threshold and a ceiling. The total value of the earn out typically exceeds the initial consideration and is a real test of confidence on the owners and their sales/profit projections.

Q. What are warranties?

A. Warranties are contractually agreed penalties that apply to a sale where money could be recovered as damages. If for example certain pre-agreed or pre-stated performance, financial or legal parameters are not met. The number of warranties will vary from transaction to transaction. Standard warranties are usually associated with TAX and VAT. Often warranties are applied in the place of technical due-diligence and understanding. We believe this practice to be incorrect and can lead to distrust and bad feeling  Business Synergies strives to reduce need for warranties by encouraging each party to pre-disclose, understand and to mitigate any issues so that a warranty becomes unecessary.

Q. Will I have to inform my staff of the fact that we are going to sell?

A. This is always a difficult question and can lead to many problems. If you are selling to a Public Limited Company you will be asked to sign a secrecy agreement before even entering into any discussion. Breaching this agreement can carry serious penalties with repercussions that can undermine the purchasers share price and at worst can lead to criminal prosecutions under insider trading laws. We have a number of examples of key staff blackmailing owners on the eve of a sale or post sale sabotaging the business because they were or were not informed. Unfortunately achieving a happy balance can be difficult this is where we will use our experience to help.

Q. What is the "retention"

A. A retention sum is usually withheld from the initial consideration in a sale that is held in a third party interest bearing bank account. This can be anything from 10 to 25% of the initial consideration and is held as an insurance policy against any un-disclosed "material" facts that come to light post sale and to also ensure that Directors adhere to the terms and conditions of their service contracts.

Q. What is a service contract?

A. It is normal for purchasers to retain the previous owners using a service contract for a fixed period of typically 2-3 -years. The role of the retained owners may change from that of a main line Board member to that of consultant. Every case is different and usually it will depend upon how key you were as an individual to the business.

Q. Anti-Trading Clauses - will there be one?

A. Normally yes, as the last thing the purchaser wishes is for you to be cash rich and then start an identical business in competition with the one that you have just sold. Not only will you have fantastic liquidity you have complete knowledge and will no doubt be able to encourage customer migration easily - a guaranteed winning formula! Hence be prepared for draconian anti-trading clauses.