There comes a time in the life of many companies that the owners decide to cash in, but how do you actually go about preparing your business for a sale in order to get the best price?
Selling a company in many ways is very like selling a house. Just as with a residential sale it’s possible to do a little bit of window dressing but educated buyers will be able to spot this easily. To get the best value for your business it’s important to start early and do a thorough job.
Developing management talent is the first step on the road to a sale. Some buyers will be looking at an investment in a business rather than wanting to run it themselves. Even very small concerns such as a mom and pop store could be sold as an investment opportunity with good quality management in place. Being able to give your prospective purchaser confidence that the business won’t fall apart just because the former owners have left is an important step in the process.
Speak to your accountant and do it early. They could well have some ideas about how best to structure a deal which will optimise your position. If your company owns the property that it uses as its base it may be more efficient to hive that off before the sale for instance but remember that a lot of tax positions have to be put in place years before to enable them to be utilised in a sale.
Get all the skeletons out of the cupboard. You may be an unusual business that doesn’t have any but most firms have something in their past that isn’t ideal. Be prepared to re-examine any issues and work out a presentation that shows them in a less harsh light.
Think about the future. Not in terms of you being there but more about how the company will make money. Do you have secure contracts with your customers or is your firm too reliant on one source of business? What threats to your income are there? Being able to show your prospective buyer that you have thought all of these issues through and that their sales income is as secure as possible will maximise the achievable price.
Look at the contracts that the business is tied into. Is the lease on your premises secure? Do you have any onerous service charges that you’d like to get out of? Thinking about it from the point of view of the buyer will give you an idea of the sort of things that may make them nervous.
Whilst we are on the subject of contracts you’ll also need to think about the staff. In the UK these are covered by the Transfer of Undertakings (Protection of Employment) or TUPE regulations. The other side of the coin is that you will also be in a better position if your key staff have valid contracts of employment and their terms and conditions are clear. No one wants to buy a business one day and then find themselves with an employment tribunal the next.
Talk to your key staff. The cheapest and easiest form of sale is a Management Buy Out (MBO) or Management Buy In (MBI). The staff know the business and where the bodies are buried. They’ll tend to take a more relaxed attitude as they already know and operate the business. There should be no agents fees on your side and although often the payment term is elongated it will be a quicker deal to broker. Even if they decide not to go for a MBO your key staff will quite easily be able to spot that you are looking to sell so to avoid unsettling them it is better to come clean and involve them in the process.
Look for a sale partner. Especially for larger business or sales that you wish to keep confidential a sale partner is ideally placed to help you through the process. It will cost you money but their experienced advice will prove invaluable and when it comes to identifying a purchaser they will already have a series of prospects on their books.
Get the financials in order. Very often smaller, entrepreneurial firms neglect the paperwork in favour of getting the deal done. A company that can show an excellent track record backed up by near perfect records is more likely to achieve both the price and speed that they are looking for in a deal. Don’t leave it to just the statutory filed accounts either. Your buyer will want to see management accounts from your year end to the present day at the very least and will be expecting to find that you understand and are able to talk them through these and the key drivers of the business. You’ll need to be able to show that you understand sales trends, changes in profitability and that you’ve got a sound forecast for the future. If you doubt this then imagine that you are going to invest your money in a concern whose only records are a lot of receipts in a plastic bag. It probably wouldn’t fill you with confidence.
Think about the sort of deal you want. If you are looking for straight cash upfront then the price you eventually get is likely to be less than if you are able to offer terms. Could you accept staged payments? Would you take a percentage of profit? Are there any incentives you could offer? Also think about your own position – will you be able to hang around for a handover and training period or will you be expecting to exit immediately?
Finally prepare yourself. Think about your life now and what it will be like afterwards. Particularly in smaller fast moving companies the owner is the hub of everything. The world revolves around her and when the business is sold all of that stops. How will you cope with not having to get up in the morning? A surprising number of business people suffer from depression after they have left their firms. Many end up just buying another shortly afterwards.
Preparing your business for sale is actually a fairly straightforward affair but it takes a bit of planning and forethought. Getting all of the elements in place well before the point that you start to market your firm will ensure that you should get the best price and the quickest sale you possibly can.