Insurance and Credit

There are a number of things which you can do to prepare your business for sale; here is our advice. Preparing your company for sale is the only way to maximizing the amount of money a buyer is willing to pay.

When planning to sell a business, it is important to remember that selling a business can take up to 12 months and may involve on-going commitment during a transition period.

1. Value your business

Realism is key – there is a need to understand the market value for your company and use this information as gauge offers within the process itself. Any company valuation must be objective, related to your industry and from an independent source.

A valuation will give you a base-line for gauging buyer offers and will give you an idea of what you can expect to net from the sale. It will also tell you your business’s market position, financial situation, strengths and weaknesses.

Obtain a valuation from an accountant or an experienced business broker. The organisation performing the valuation must have access to current accounts and forecasts. Most importantly, any business broker needs to understand current industry sentiment and having a clear sector understanding is imperative.

2. Accounts

Potential buyers will generally require three years of historic accounts. The better prepared and more professional your accounts, the better the impression you’ll make. Solid accounts also make the buyer’s due diligence more straightforward.

3. True profitability?

Small and Medium sized businesses often put through their book a number of non-operational costs. It is imperative to understand these costs and have the necessary justification to argue why they should be excluded.

Expenses which do not recur should be excluded from the cash flow.

4. Financial information

An early conversation with a financial advisor to understand both the personal and corporate tax situation is imperative. An understanding of your tax situation will impact timing and may influence deal structure.

5. Documentation

Review your incorporation papers, permits, licensing agreements, employment contracts, leases, customer and vendor contracts. Make sure they are readily available, current and in order.

6. Succession planning

Buyer support post sale must be considered. A succession plan must be in place before the business is advertised or potential buyers are approached. An area for particular attention is to show the potential buyer how the daily activities of the sellers will be accommodated.

7. Divestiture motivation

Buyers always want to know why you are selling. Be prepared to articulate your reasons and make sure they are genuine.

8. Advisory Team

Use a sector-specific business broker who will be able to advise you before and during the selling process. We recommend that you contact business brokers, legal representatives and accountants who are proficient in mergers and acquisitions at least 3-6 months before you wish to start selling your company.

Finally, always keep focused on running your business. It is all too easy to let the performance of the business decline because you’re too focused on the sale of your business. This will only give buyers additional negotiating power to lower their offers. A great advisory team will let you focus on running the business while they get on with the job of selling it for its maximum value.