5 Key Steps To Get Your Business Ready For Sale
February 26, 2018
I am not, unfortunately, going to set out a fail-safe route to follow to get your business ready for sale – because there isn’t one. But we have been working with a range of businesses recently on these questions and it struck us that it was worth going back to a few basics on this.
So, here we go:
1. If you are thinking of selling and only take one thing away from this blog take this – the most effective and ultimately valuable thing that you can do as a business owner to prepare your business for sale is… make sure that it is not dependent upon you. Have a second-tier management team (big or small) in place who have the skills to run the business on a day to day basis.
By all means, come into work regularly, daily even, if you enjoy it. But make sure that the business does not need you to do this in order to function.
A rough and ready test of whether you have reached this stage might be – could you go on a 6 month round the world trip (with atrocious mobile and email connectivity) and both you and the management team feel comfortable?
2. A sale is always made easier if your business is continuing to grow. Not at an unsustainable pace – buyers will tend to regard that as carrying too much risk.
Now, what do we mean by growth? Turnover, yes – but it may not be in profit terms. Why? Because you may have invested in the productive capacity of the business to both prepare it for future growth and to maximise the chance that it is sustainable.
In a sense, the growth you want to be able to demonstrate to a potential buyer is an improvement in the quality of the business. Improve the quality and capability of a business and increased sales and profits are more likely to follow.
3. This idea of improving the quality of the business prior to sale runs through everything. Consider your customers.
Not all businesses can do this (i.e. retailers) but as far as possible get your customers on some sort of contractual commitment to you. Do this and the quality of the earnings of the business improves – and so will its value.
4. We mentioned investment earlier. Don’t neglect on this. You want to be able to present a business which has invested in the people and equipment it needs.
Running it on a shoestring might flatter the profitability – but buyers will quickly see through this. They may even wonder whether any other corners have been cut.
5. Talking of which, make sure that the areas of risk across the business are minimised. That means resolving any employee, customer, supplier, taxation, regulatory disputes before setting out on the sale process.
Most business owners will require an element of goodwill to be paid for their business. Essentially goodwill is related to the underlying quality of a business.
Disputes such as I have mentioned above can suggest to buyers that the underlying quality of the business being sold isn’t all it should be. And hence they may seek to reduce the value placed on the business or, even worse, walk away.
The above is by no means exhaustive, but these issues are among the most common we encounter when advising clients wishing to sell. Not all of them may apply to your business – then again there may be others which do.
Whether any of the above resonate with you or not, if you are thinking of selling it pays to get a dispassionate (and experienced) set of eyes to look over your business before taking it to market.
If you would like to discuss selling your business, or you would like to speak with a member of our team, please contact Stephen Gregson or call 01772 821021 to be put in touch with a member of our Corporate Finance team.