Przegląd Piekarski i Cukierniczy, February 2018
Selling a bakery or a chain of confectioneries is a very complex operation and is often burdened with a great deal of emotional weight. Preparations for the sale should begin at least a dozen or so months in advance. This makes it possible to increase the company’s value and come to terms with the emotions involved.
Sometimes, however, we do not have that much time and must sell the company relatively quickly. In order for the operation to proceed smoothly and not become a concealed liquidation of a lifetime’s achievements, five specific steps must be taken to prepare the company for sale in the best possible way.
The investor sitting on the other side of the negotiating table will use every instance of neglect as an opportunity to reduce the purchase price of the company.
Step one: indicate positive reasons for selling the company
It is not good when we sell a bakery or confectionery because of a sudden illness or family problems. In such situations, the entrepreneur loses their negotiating position and practically becomes a hostage to their misfortune. This is an ideal situation for speculative private-equity funds. It is therefore advisable to keep certain matters secret, because they have a direct impact on the negotiating position during the sale of the company.
Selling a company is somewhat similar to selling a house. We do not say that we are selling the house because we have a strange neighbour or because the house is too close to the airport. We usually say that we are now buying a new residence or moving to another city. We create an optimistic story and generally avoid pointing out defects and negative stories associated with the property being sold.
Step two: know what is being sold
The sale may, for example, cover goodwill alone—that is, intangible assets such as the company’s good brand, contracts, recipes, production organisation and loyal customers.
Everything can also be sold, including real estate and industrial facilities. There are many intermediate forms, including the possibility of selling separate areas of activity, such as selling only the chain of confectioneries. Each form defining the scope of the sale has its advantages and disadvantages and requires careful consideration. It is important for the owner to make a decision before investors appear.
Step three: value the company
This task should be performed by a person specialising in the valuation of companies in the particular industry.
The valuation should be based on a forecast of the value of the cash flows generated by the company each month, multiplied by the agreed investment payback period. Such a valuation is adjusted using a set of value factors tailored to the particular industry. In subsequent articles, I will attempt to discuss in detail the most common method of valuing a bakery/confectionery with an associated sales network.
Step four: put the documents in order
Probably never before has it been so worthwhile to review liabilities, provisions and the list of unfinished matters so meticulously. Together with the accountant, all disputed and unresolved matters should be reviewed so that they do not become an argument for the opposing party during negotiations. Buyers must be shown that the bakery or confectionery is run impeccably, that regular stocktaking and accounts registers are maintained, and that personnel matters are handled in accordance with the regulations. Introducing simple procedures and a fair employee-remuneration system is good practice. All of this must lead the buyer to believe that, after the purchase, they will not have to invest time and money in putting the company in order and reforming it.
Step five: engage external specialists
Before the sale, external specialists from various fields should be engaged to assist with putting matters in order and with the transaction itself. The presence of external personnel will help maintain emotional distance and the necessary objectivity. Consideration should be given to hiring an external accountant or statutory auditor to assess and put the financial statements in order, an appraiser to determine the company’s value, and a professional negotiator who should appear in the company well before the planned negotiations. The participation of lawyers is also essential, among other things to assess the quality of contracts with customers and business partners, because the quality of contracts largely determines the company’s value. Personnel matters should likewise be checked and put in order by an external person. The cost of hiring a group of external specialists may prove highly worthwhile in view of the high selling price obtained for the company.
Sometimes life forces company owners to sell their bakeries or confectioneries suddenly. There is then no time for building value or spending many months searching for a suitable investor.
Whether we secure a high standard of living for ourselves and our families for the years ahead depends on how meticulously we approach the activities preceding the sale.
Wojciech Moszczyński
Owner of the consulting company K12 Equity Council