Preparing your business for sale
A business often takes years of blood, sweat, tears and sleepless nights to make a success. In order to make sure you get maximum value for it when the time comes for you to exit, you need to prepare fully, as selling a business is a complex area.
This article aims to highlight some key aspects you should consider now as part of this process.
Time: Work on preparing a business for sale should start several years in advance as there is a lot to do in order to achieve maximum value on your exit. You should undertake a thorough review of the entire business (as any savvy buyer will) and it will then take time to get all your ‘ducks in a row’. Often overlooked, but equally as critical, you will need time to consider your personal wealth position and what you need on any exit.
Professional advice: A trusted team of advisors should be instructed who you can work with for a substantial period of time; chemistry is key. Accountants, lawyers, corporate finance experts and financial advisors should form part of your core team and the earlier you take advice from them the smother the process will be and the better value you will achieve. They can advise on all the areas in this article and, importantly, should be involved when you come to agreeing heads of terms.
Key people: How critical to the business are you and what will change if you exit? Any buyer will ask this question, so think about succession. If there are key people to the business (other than yourself), make sure they are happy and properly incentivised (consider salaries, bonuses generally and bonuses connected to the sale). Make sure all employees have completed, signed and dated written contracts of employment in place containing enforceable restrictive covenants. Although there are legal obligations to which you have to adhere, how early on in the process you inform employees of the potential sale will need careful thought.
Finances/accounts: Organising financial information in to a format a buyer will want to see can often take several years. Remember, when you own a business the aim is often to make the accounts show the minimum allowable profit for tax reasons but when you are selling you may want the accounts to show the opposite. Extremely detailed financial information will be wanted by all buyers and will heavily influence how valuations for your business are put together.
Growth plan: Thought should be given as to how the business and its profits can grow in the coming years and what investment and changes are needed to achieve this. This will make buyers start thinking about how they can make good returns on their investment and how they can add value if they buy your business.
Key contracts: If you have key customers, clients, suppliers, distributors etc. you should review all of these contracts to make sure the terms of each contract are clear, as uncertainty over these areas can often lead to concerns and an unwillingness for buyers to proceed.
Records: All documentation and information about every aspect of your business should be orderly and complete. A buyer will carry out a thorough due diligence process and it is in everyone’s interest for all the information and documentation to be readily and easily accessible. We would be happy to provide you with an example due diligence questionnaire that a typical buyer may produce so you can see what needs to be covered. If you would like one, please just get in touch.
Taking all of the above steps will show potential buyers how valuable your business is, which in turn creates competition amongst buyers, which is often critical to achieving maximum value on any sale of a business. Remember – buyers won’t pay more than they can get away with!