Selling your business can be the largest financial decision that many entrepreneurs make. For many, the process can be daunting and complicated.
Here are a few key points to consider when preparing your business for sale:
Reliance on key staff
Often a business may be very reliant on the owner. If a business will struggle to thrive without one key person, then it will be far less attractive to potential buyers. Having strong systems and controls with responsibility spread across a management team is far better when negotiating a sale. This may also reduce the time commitment post completion for the seller(s) and should make the post deal process far smoother.
Buyers will want up to date, accurate financial information to help them form a view as to how much a business is worth.
Having management accounts available, a strong onus on good financial controls and being able to promptly provide financial information required for any due diligence will:
- Give the business more credibility to any buyer
- Likely improve the price any buyer is willing to pay
- Make the sale process far smoother for both sides
A business trading well, with increasing turnover, strong margins, good control of working capital and a skilled, experienced workforce is worth far more than a business struggling on those metrics. Buyers will often review at least 3 years of historical data to get comfort on the general trend the company is heading in. It is therefore important that sellers do what they can to be able to demonstrate that the business is on an upward path and planning ahead of any potential sale is very important.
What are you selling?
This may sound obvious but it is imperative that the buyer and seller both have clarity on exactly what is being sold/acquired. For example: is it the shares in a company, is it the company’s trade, customer list, fixed assets etc., is the business premises included, are there any other assets to be excluded or included? The answers to these points will likely have a material impact on the consideration as well as the tax burden from the transaction. Some routes can be far more attractive tax wise (eg. can a double tax charge can be avoided or a lower rate of tax applied?), certain options are simpler to complete from a transactional point of view and both parties need to be mindful of what risks they are taking on as a result of how the transaction is structured.
Unfortunately, lack of clarity on these points in early discussions can often cause confusion and some ill will between the parties down the line.
Certain buyers are willing to pay far more for a business than what might normally be considered to be fair value. For example, if a buyer is confident they can achieve huge growth from your business that other buyers wouldn’t be able to achieve they may be willing to pay a substantial premium for this. Though this scenario is unusual, it should always be considered to ensure that maximum value can be obtained on a sale.
Skeletons in the closet?
If a business is being sold that has a number of outstanding problems or issues then naturally any buyer will factor those into whatever offer they are willing to make. Buyers routinely insist that the sellers provide certain warranties and indemnities which could come back to bite sellers. It therefore makes sense that sellers ensure that, as far as possible, their house is in order for certain areas including (but not limited to):
- All company minutes and documents
- Health and safety policies and such like
Tax, accountancy and legal advice
Given the likely value and importance of the transaction it is vital that suitable advice is obtained to ensure that any transaction is suitably structured. The cost of such advice can be expensive but is usually dwarfed by the cost of problems that result from not having received the advice!