Preparing your business for sale
Selling a business is often the most important decision many owners will take. Having invested considerable time, money, energy and emotion into a business, ensuring maximum return on that investment is extremely important.
There are many factors that can dictate not just the price that a buyer is willing to pay for your business but whether it is even of interest.
Ensuring your business is ‘sale ready’ will make it more attractive to potential buyers.
It is never too early to start planning for exit and implementing a number of good business practices and disciplines in advance of a sale, will not only make the sale process much smoother but will enhance the value to a buyer.
Here are some top tips to help you ensure your business is ‘sale ready’:
Can the business operate without you?
Entrepreneurial businesses are, by definition, reliant upon their owners. However, a buyer will often want to ensure that the business they are buying is capable of operating, and growing, in their absence.
If the business cannot function without its owner, then what is a buyer acquiring? Ensuring that you have a credible management team, who can continue to drive success when you step down will make your business far more attractive to a buyer and will likely result in a higher price being paid.
Poor financial information sends the wrong message to a buyer. Good quality, up to date financials not only makes good sense but make a buyer’s ability to value your business, and rely on the financial results, much easier.
A buyer will undertake financial due diligence on your business as part of a sale and being able to provide this information not only makes this process smoother but improves their perception of your business and may reduce the chance challenges to the pre-agreed sale price.
For most businesses, the more profitable it is, the more valuable it is to a buyer.
Being able to illustrate a strong, growing profit pattern, over a sustained period will increase the value of your business. Knowing the right time to sell is imperative. Understanding your business’ profit trends and future growth opportunities, as well as underlying market dynamics, can dictate the optimal time to sell a business.
Being able to present your business’ future growth opportunities, and potential future profits to appropriate buyers will also enhance its value.
During a sale process, it is also key to perform well compared to forecasts. A strong financial performance during diligence and negotiations will provide additional confidence to the prospective buyer.
Manage current and future risks
Managing the risk of your business’ such as reliance on any particular customer or supplier improves the defensibility of a business and reduces its risk profile in the eyes of a buyer.
In some cases, customer or supplier concentration cannot be avoided but where possible this can be mitigated by incorporating or extending customer or supplier contracts to enhance the strength of these relationships.
Manage cash, debt and working capital
Buyers will seek to acquire a business with a ‘normal’ level of working capital being retained. Understanding your business’ working capital cycle and being able to drive efficiencies in its working capital management can unlock additional value in a sale process.
Typically, cash will be added to the headline value, with debt and debt like items such as corporation tax liabilities being deducted from the price.
Legal and financial tidy up
Again, ensuring compliance with your legal and financial reporting requirements sends the right impression to a buyer. From a legal perspective, make sure that items such as incorporation documents, share certificates, property leases, title deeds, intellectual property rights, employee contracts or customer and supplier agreements are in place and up to date.
This removes the burden of tackling these whilst going through a sale process and presents your business governance in the best possible light.
If you sell your business, unfortunately the taxman will (generally) be entitled to some of your sale proceeds.
Some basic tax planning can help to reduce this bill. But don’t leave it too late to address this, as certain opportunities can be missed if not addressed in advance of a sale.
Speak to your advisors
Of course, we would say this! However, experienced advisors will provide valuable advice to make your business ‘sale ready’, maximise its value and support you in executing a successful transaction.
Get in touch
If you would like to know more about how we can help prepare your business for sale, and provide advice throughout a transaction, please do not hesitate to get in touch.
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