Selling a business

[Abeona]

I'm asking for advice on behalf of my step-sister. For the last 20+ years she has run her own small business in the green energy/ construction sector. (PV, solar thermal, heat pumps, underfloor heating etc). She fell into doing this almost by accident: a former boyfriend imported PV systems and she recruited and trained teams to fit the kit.

For the first decade she worked 24/7 and made serious money in the PV boom. Then she scaled back in order to take care of family commitments and after a health scare last year she wants to retire later this year at 58 and enjoy life. She hoped that her son would be interested in joining the business and would have been prepared to work with him for a year or two to get him going, but he has other plans. There are currently no employees — all the work is done through trusted sub-contractors. She assumed she'd just finish all the outstanding contracts and wind up. There is no office, no fleet of vehicles — just the content of her head, her contacts list and trading record, a good company name, a decent reputation and her MCS and other accreditations. She's turning down potential clients each week. She hasn't advertised for some years. Clients come via the architects, surveyors and planners she's worked with over the years, and through word of mouth.

Recently one of her former clients heard she was winding down and suggested she should sell the business. She didn't think it was worth pursuing, but she made a couple of calls and was surprised at the valuations she received, in the region of £150-250k. However, she was very aware that she was talking to salespeople and having met many sharks in her own sector, she is wary both of the valuations and the requests for payment in advance. Both the people she's been in discussion with are looking for money upfront to sell the business — £2-4k — and then take a 5% cut.

Any advice on how to value the business and how to sell it (if it's worth selling) would be gratefully received. Is it normal in these circumstances to pay a fee upfront?

but she made a couple of calls and was surprised at the valuations she received, in the region of £150-250k.

on the basis of a phone call with her they threw around figures like that?

there’s nothing to buy other than the name?

the only value in the business at size is what someone is prepared to pay. and in the current market unlike to sell for anything - maybe a competitor might take it for the customer database.

Currently also been trying to sell a business that's too niche for most people we where given valuations of up to 500k, but in reality the value in the business is us , we're more looking at a merger now rather than selling.

@bestmoment plus the customer portfolio

they’ve had the job done already so what would this achieve?

She was able to give them the details of the profits the business has made for the last 20 years. They've been able to check her accounts at Companies House. There have been times when she has paid herself a decent salary and the business (she is the sole owner) has also made £150k profit. In 2018, working part-time the business made £60k profit after her salary.

The way that people who seem to understand how businesses work see it, 20 years of accounts, excellent credit lines and established trading relationships with suppliers, plus a good company name and logo, a domain name, 20 uninterrupted years of profit, accreditation with MCS and other necessary organisations add up to value.

Basically, it's an up-and-running business that someone could walk into and build on. Someone could employ someone like her for £50k pa and expect them to run the business at full capacity with the owner taking the profit.

Without property or other assets that valuation sounds high. Given that the client list will be mostly people who have had the work they want done, and your friend is the business really so without her running the show there doesn't seem much of value left. Maybe the network of fitters as trusted subbies. When you look online for businesses for sale they are mostly based around the property value.

But hey, if the dotcom boom proved anything its that someone with enough cash might just buy it! I'd want to negotiate a deal that didn't require and upfront fees.

Customers who had, say, PV systems installed ten or 15 years ago are constantly coming back to ask for new systems on their new homes, or for repairs and replacements. Ditto those who've had air source heat pumps. Once someone's got PV, they may well want to have other alternative technologies too. Maybe an EV charging point — something she offers. Batteries — which she offers.

Oh, and there's no better salesperson than someone who's had PV or a heat pump and talks to their friends and relatives and neighbours about it. DSS has kitted out whole streets with PV or batteries or whatever. She's pleasant and conscientious and gets recommended a lot.

The way that people who seem to understand how businesses work see it, 20 years of accounts, excellent credit lines and established trading relationships with suppliers, plus a good company name and logo, a domain name, 20 uninterrupted years of profit, accreditation with MCS and other necessary organisations add up to value.

and all dependent on one person. A retiree.

accreditation with MCS and other necessary organisations add up to value.

new owners won’t be able to use. They will have to apply themselves

Any advice on how to value the business and how to sell it (if it's worth selling) would be gratefully received.
She should speak to her accountant. They will also advise on tax implications.

this

her first job is to chat with her accountant

Really? It's the business that's accredited, surely?

absolutely not.

That would completely undermine any accreditation. The business hasn’t earned the accreditation. She has

If someone else can buy it and employ someone to run it, why isn't she doing that

Because she's had enough, she's been through cancer treatment, her husband is retiring and she wants to retire too. She's spent 20 years managing her teams of fitters and she wants to stop managing people.

just tell her to head straight to her accountant on this issue then.

First step is she needs to speak to her accountants for advice

If I were her I'd look at other, newer companies in the same space and start researching them. If she finds one that's growing or very new she should start a conversation about selling to them.

The bit that everyone seems to miss is that she's getting tonnes of referrals from other trades - that's gold in this line of work.

My uncle was an IFA so again all about him and his customers but he sold to a larger company who had him on a salary for a couple of years as he gradually stepped back and handed the clients off to the new company

You say anybody can buy the business and employ someone to manage it for £50k and then take the profits. So why can’t your DSS employ someone on £50k to do all that for her while she steps back?

Wouldn’t your best bet be one or more of the fitting team who will presumably be left without jobs. They should be interested in a buyout, surely?

If some customers are builders, they may want other houses done in the future

My uncle was an IFA so again all about him and his customers but he sold to a larger company who had him on a salary for a couple of years as he gradually stepped back and handed the clients off to the new company

Your uncle was an IFA, which means he has a live and ongoing customer base who continue to need his expertise. So they bought him and his client list. He worked for them for a couple of years and during that time he would have gradually passed on work to colleagues and made introductions between clients and colleagues so that when he left i imagine most of his clients stayed with business or perhaps some left.

Whereas all those who have already had pvc are past clients and unlikely to need again ib the future and certainly not on an ongoing basis

Gosh, BestMoment, are you this negative about everything?

My DSSis was one of the early people installing PV and made a bit of splash because she's a woman. She's known and so, more importantly, is her company. She's been one of a team of advisers working with regional government on policy. She's done loads of consultancy. She's worked with LAs, housing associations and with major building companies: her team installed heat pumps and PV for 70 houses built on a new estate near my village just before Covid. She is the go-to alternative power and tech person for a number of local architects and developers and has designed and fitted systems for a number of major £millions new build projects, including two that have appeared on Grand Designs. She set up and in the early days taught on courses at her local university. She's worked with all the local building firms, she's worked on properties that are part of ongoing energy efficiency studies with various bodies. She has a couple of big commercial projects on the books that she hopes are finished by the summer on a couple of local industrial estates and already has enquiries from other warehouses etc on those estates who want PV too... So the business could come with a full pipeline of jobs if she decided to add them to the books and could give a new owner a guaranteed first year (at least) of income.

Thanks for the more helpful comments from people who can see the potential. I've suggested DSSis speaks not just to her own accountant but to more specialist accountants in her area. I googled and sent her a couple of links. Better to explore that — and spend money on quality advice — than to give money to the cowboys.

Gosh, BestMoment, are you this negative about everything?

😂

one thing to do. for you to do, her friend, “get ye to your accountant pronto”. and then stay out of it