Original article written by Stephen Fear for the Urban Times August 2013.Selling your business after spending years creating it is probably the most important thing you will do. Personally I hate selling businesses because for me they become part of my daily activities & serve as an intrinsic element in my social, as well as business life.
Having said that I have sold many businesses and find it essential to prepare properly to achieve the right price.
One of the most important issues is that of succession. It is essential to understand, if your business is of a reasonable size, that most buyers will be looking to run it under management, or at least partly that way, so having someone already in the business who would like to stay on is something many buyers look for, as are professionally produced and up to date accounts.
I thought I would briefly examine a real living business as an illustration of what selling a business involves. I’ve contained it within the scope of 800 words, because the subject could fill a book. Duomax: A Case Study
In 1990 Brian Baker discovered that a particular cleaning fluid was able to successfully clean machinery, particularly mainframe computers used by the likes of IBM.
Seeing that this fluid had potential within the hospital sector where new forms of resilient bacteria were mutating due to nutrients left on machinery & providing a food source, Mr Baker decided to approach the authorities after finding that detergents being used didn’t contain biocides, which would effectively kill bacteria in a protected hospital environment.
Many cleaning products have been developed by the Baker family over the last 23 years but Brian believes that their latest product Duo-max surpasses everything they have done before & effectively breaks down the DNA and RNA of both bacteria & virus infections, therefore stopping them replicating.
Mr Baker tells me that Duo-max is the only proven cleaning fluid available which is both non-toxic & non-corrosive & contains no alcohol or chlorine which is one of the reasons he has driven a sales initiative into Muslim countries such as Dubai & The UAE where the product is currently on sale.
In a report I have read dated February 10th 2010, Dr Chris Woodall of BluTest laboratories based in a building at Glasgow University said that “Duomax hand sanitizer does comply with EN 1500 Chemical disinfectants and Antiseptics-Hygienic-Hand Wash.”
Brian Baker & his family have spent hundreds of thousands of pounds developing their current product, often leaving the family short of personal cash flow. However against all the odds & over many years it appears they may have found the holy grail.
Both Brian & his wife Janice are now in their sixties & really wish to retire and the couple’s sons, Lewis & Daniel want to move onto other projects having been involved with the family’s obsession with cracking a formula aimed at destroying MRSA & CHLOSTRIDIUM DIFFICILE for most of their lives.
Mr Baker is considering selling after being approached by a major international company within the sector.
So how do you value a company which has spent most of its time on developing a product rather than making substantial profits?
It is essential to find a buyer who understands that in this instance it is the IP (intellectual property) which is valuable rather than the trading profits or brand because this has yet to be established by a major international marketing campaign. As With Facebook
Just like the original investors in Facebook, including the Rock Star Bono who invested $90m in 2009 & who reportedly received $1.5B when the social media site went public in 2012, Brian Baker will be selling unrealised potential, which in his words is ready to be exploited.
Clearly he will need to prove all the scientific claims made for Duomax because major international companies have teams of legal people waiting to tear into the facts, but providing these can be proven the potential buyer will look at their own ability to market worldwide as an asset they possess, rather than the Baker family, and negotiate firmly on that premise. In a way that massive ability to market & distribute belongs to the potential investor and therefore forms part of their own business DNA & as such is a very valuable asset. Life in the Sun
Brian Baker has established a management team but in my opinion where international companies purchase an IP rather than a fully-fledged trading business this is less important because they are essentially buying a proven scientific formula. Still it will do no harm and make transition easier.
If all goes according to plan Brian & Janice will soon be enjoying a well-earned retirement in the sun & Lewis & Daniel may well become investors in other businesses & the rest of the world will benefit from the huge risk they took by going out on a limb and developing a product which if it’s as good as they say will benefit everyone.
Good luck to them. After all that effort over many years, they deserve to reap the rewards.