Pulling together all the elements to make selling your business a success can be a complicated process. What do you need to do to find the right buyer willing to offer you the right price?
Here are some tips and strategies to help.
Keep your business focus
During the sales process it’s essential you continue in “business as usual” mode. Keep focused on your customers and delivering value to them. If customer satisfaction goes down the value of the business you are selling may reduce too.
You’ll have extra work as you prepare to sell. Look at your operations and staffing. See how the allocation of your time and other’s time may be impacted. Advance planning is key.
Keep an intended sale confidential. Only inform other staff when they need to know. This will help keep the day-to-day running smoothly.
What are you selling?
Be very clear about what you are selling. Are you dividing a business to sell only a part? If so you’ll need to identify the costs associated with the portion that is being sold. For example, the business may currently provide some services internally. This won’t continue after the split/sales. Budget for these costs realistically. They will be looked at carefully by potential buyers.
Be realistic about your price expectations. If you are a private company analyse the sale prices from the last two-three years for your company type, scale and size to get a benchmark price.
You may want to use an experienced external adviser with access to this crucial type of information.
For SMEs, you’ll need to identify shareholders’ expenses that are charged to the business and other “one off” expenses that may have been charged to the profit and loss account. These figures may need to be added back to the P&L to establish the recurring profitability of the business. Buyers like to see consistent trends and therefore a sale may need to be managed over a two to three year period taking in to account the industry, the market, managing sales and achieving a targeted growth curve.
Invest in due diligence
It’s advisable to get legal and accounting firms to undertake due diligence on your company. It will highlight issues you may not be aware – allowing you to manage them in advance. You’ll know what may come up when a potential acquirer looks at your records. There’ll be no nasty surprises which could negatively impact the selling price.
Checking your own business sale fitness before any due diligence from potential buyers is particularly important for SMEs This is because accountants often finalise accounts without clearly explaining year-end adjustments and what their impact has been.
You must understand the impact of any sale on your business’ own tax position; both corporate and/or personal tax. Depending on the shareholders involved, it may be possible to shape the consideration so the tax bill to be legitimately minimised.
Warranties and Indemnities
In any sale you have to warrant the information to the purchaser i.e. you must be able to say that information has been prepared on a proper basis and gives a true and fair view of the business you are selling.
If certain items come to light a purchaser may be entitled to make a warranty claim. The sale and purchase agreement will need to have a procedure to deal with this.
You will need to give various indemnities on the taxation position of the company, guaranteeing that the position of the company is as you say it is. Should any issues emerge, there will need to be a procedure to deal with this, including a notification process if you need to make any payments as a result.
Statements and Memorandum
Ensure you fully understand the “completion statements”. These deal with cash and other assets within the business and lay-out what happens when the sale is completed. If you’re fully aware of these you can ensure that everything is in good order on completion.
As part of any sale an information memorandum will need to be prepared. It is usual to instruct an external party and may take six to eight weeks to prepare.
Given the volume of information required in preparation for a final sale, it’s unlikely that you can handle it on your own. A project manager/team will be needed. This investment of time and money will make the deal process more efficient, and identify issues including ones which may require careful thought before your present them to potential buyers.
Business owners are often surprised by the effort the sales process can take. Allocate the time, energy and resources to do it properly. To get the best price you’ll have to simultaneously run your business and manage the sale.
Clive Hyman of Hyman Capital Services
Further reading on selling your business
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