For some, the sale of a business is an objective set many years before the disposal takes place. For others, a direct approach or a life changing event may lead to an accelerated process. Whatever the timing of the decision, business owners have the opportunity to take steps to maximise the likelihood of a successful sale and improve the value obtained.
Know your industry
Keep an eye on what is happening in your industry – read the trade press, speak to your competitors and suppliers. You will quickly get a feel for market trends and opportunities, and this will allow you to have an informed conversation should you receive an approach.
Know your business
Take some time to step outside your business and understand why it performs the way it does. Customer and supplier feedback is always useful, and understanding the motivations and concerns of your staff may lead to improved working practices and efficiencies. Depending on how much time you have before a sale, there are certain steps you can take that will help in the sales process when it begins.
Three years before a sale
- Undertake a personal financial review and understand your financial position following a sale – include pensions, property and a business valuation. This will tell you if a potential sale meets your objectives and allows you some time to correct any shortfall.
- Consider a restructuring of your business, removing any assets to be retained and dividing the business into separate entities if they might be sold separately. This will allow you to demonstrate a trading history for each entity.
- Document a business plan and projections. This will show you what can be achieved in the next three years, and by documenting this, you will be able to benchmark to potential buyers how realistic and accurate your business projections are.
- Begin to separate the business from the owners. This might include a name change, promotion or recruitment of key individuals, training for certain staff members, and the separation of business and personal lives.
- Ensure the owners remuneration is clearly identifiable, including all benefits, as these may be “added back” for valuation purposes.
- Undertake a review and improve your website and social media presence – this will be reviewed early in the assessment process by a potential buyer. If you can, increase your social media activity and raise your business profile.
- Review and improve your management information and reporting. You should aim to produce information in an accurate and consistent way to meet deadlines. This will give a buyer comfort that the information on which they are basing their decision to buy is accurate and reliable. Address inherent weaknesses in your reporting, such as stock valuations or work in progress. Provisioning on an ongoing basis will also help avoid large reductions in profits.
One year before a sale
- Review and update your legal documentation, including employment contracts, leases and customer contracts. Renew and extend customer contracts if possible, and consider any potential claims or clawbacks from previous contracts. Identify and settle all disputes.
- Update your three year projections and set a budget for the forthcoming year
- Review your performance over the last three years and update your valuation. Begin the process of reducing your costs and making savings in order to increase profits. If you can, look to drive some additional growth – new customers with growth potential are always welcome!
- Consider discussing a potential sale with your key people. This may lead to a Management Buy Out (MBO), but in any event will reduce the shock of a sale announcement which is likely to be much more unsettling.
- Interview Financial and Legal advisers. This will allow you to take a range of views on your business and the potential issues surrounding a sale, and obtain some comfort that the advisers you choose understand you and the business.
Reset your timetable if necessary. The decision to sell is yours, and if the timing is wrong, or you become uncomfortable with the process, don’t be afraid to stop and look again at decision to sell.
Marketing your business for sale
