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It’s All About Timing - news article image

It’s All About Timing

30 Jun 2016

My initial plan (as difficult as it is just 6 days on) was to avoid discussing the referendum or Brexit in any great detail. Contagion has resulted in the phrase ‘it all depends’, so often cited by any floundering economist attempting to give an opinion, becoming an axiom used by professional advisors, business people or social-media aficionados looking to throw their weight into the financial and political melee that has developed this week.

This was the plan. That was until I received a phone call this morning from a business owner, who up until last Thursday was indeed excited to begin the process of selling their business and move on to pastures new.

Quite rightly the first question asked to me was “is this right time to begin this process?”. Much to my own annoyance I responded with those simple three words that at the very least bought me an additional 5 seconds thinking time – “It all depends”.

So what does it actually ‘depend’ on?

How long are you prepared to wait?

Firstly, as far as we know at least, everyone needs to become comfortable with some uncertainty for the foreseeable future. With no recent historic precedent for this type of event on this scale, there is no timespan for how long the uncertainty may continue.

The most recently comparable example of our withdrawal is Greenlands exit from the EEC in 1985. With a population of 50,000 and an export economy that consisted primarily of fish the ‘divorce’ process lasted five years. No one has placed any firm bets but a general timescale of ten years has emerged from some leading figures in the case of the UK.

With this in mind it’s not a case of no time being ‘the right time’. If you are pleased with your companies trading and financial performance over recent years now may be the best time to realise your businesses full value. This is far from an attempt to move away from ‘selling your businesses future’ to any potential buyer, but if you do have a series of upward trending sales and profit figures over the last five years now maybe the most effective time to take advantage of this.

How much are you really affected?

A difficult question you must ask yourself is how much is your business really going to be directly affected? Former BoE governor Mervyn King said earlier this week there is “no reason for any of us to panic”, whether you agree with this comment or not it’s fair to say that if hysteria can be avoided, it should.

There will be a number of indirect factors that will affect your business. All other things being equal reductions in the value of the £ is likely to create upwards inflationary pressure across the economy that could hit company expenses. But, have you suffered a 10% increase in your direct costs in the last week as the majority of your purchases are from a US supplier?

If the answer to the latter example or other similar questions is ‘no’ then fortunately this may act a positive in any sale process, particularly where nervous buyers are looking to diversify away from areas they perceive to be more directly exposed to any impact of Brexit. Look at these points in detail with your advisor and make them abundantly clear to any buyer who may be seeking to spread their risk through acquiring safer businesses.

Buyer’s appetite

Indeed, a number of buyers may have put investment decisions on hold until more details emerge. On the other hand companies may be seeking to utilise this opportunity to step up acquisition searches in the hope of picking up a bargain. This influence could make for an active buyers’ market in the coming months, if that is the case you just need to ensure you have a good advisor to assist in price negotiations in the latter stages.

So maybe this week, or the next week for that matter isn’t the best time to make this decision. With so much uncertainty around the terms of our withdrawal at least until formal negotiations are underway it should be expected that some markets may be shocked a few more times. However don’t be afraid to begin having these discussions with your advisor if exiting your business is an option you have been considering as of late.

And if you do find your initial question being met by a heavy pause and those three words – ‘it all depends’– well, at least you can hopefully use these points to further the discussion.

It’s All About Timing - news article image

Author:

Dan Hayes

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