Your ‘How to’ guide to Prepare for the Sale of your Business
Owners sell their businesses for different reasons, including Retirement, Health grounds, an unsolicited approach, or just wanting to dedicate time to a New Interest or business idea.
Whatever the motivating factor, you must plan for your exit from your business, as it's the biggest business decision you will ever make. It’s definitely not something to be taken lightly, nor one to be made without thorough preparation.
Preparing a business for sale is a daunting task and it's not something you should tackle without first talking to your Professional Advisors i.e. Accountants and Solicitors. Appointing a professional Broker is the best route to ensuring you source a credible buyer and achieve the optimum return
Position your business to ensure it’s ready for the Sale process
The sale of a private company is often the culmination of a lifetime’s work and you can only sell your business once. Therefore it's important to be prepared and have your business sale process planned & ready.
The Professional Broker will guide you through the steps below to ensure that the first impression you make to a potential acquirer is the right one
■ Business Plan – Prepare a business plan to include three-year forecasts. The plan should include details on growth drivers in your market, analyse the competition, and identify what features of your unique product/ services will help you achieve your forecasts.
■ Client concentration – Reduce over-reliance on a small number of customers. Client concentration is a big risk for a buyer, so the greater the spread of customers the better.
■ Manage operations efficiently – Cut costs by renegotiating supply contracts, eliminate unnecessary expenditure, reduce stock levels and tighten credit control. Operating efficiencies will improve your bottom line.
■ Management of Succession – Is your management team strong enough ? Does the team have the right skill set or do you need to bring in complementary skills ? A business that is too dependent on one key individual is potentially of lower value.
■ Key employees – Identify and Secure key members of the team with contracts of employment to induce them to stay with the business post sale.
■ Key business contracts – Update/Put formal contracts in place with customers and suppliers if they are not in situ already. Know the Change of Ownership clause in current contracts so that you have a clear understanding of what could happen in the event of a sale.
■ Minimise Buyer risk – Ensure your business is fully compliant with regulation, environmental, taxes and health and safety.
In short, a business is worth what someone is willing to pay for it. Different types of buyers will see value in different ways.
Factors considered when assessing value include future growth potential, management strength, financial performance, net assets, technology, IP, customer base, new markets etc. Obtaining a valuation report from a professional Broker may give you a lot of market knowledge in your sector, but only use it as an indication of value. Hiring a Broker to manage a Competitive Sale Process which creates competitive tension is the only way to ensure maximum value is realised
How long is the sale process?
A sale process usually takes six months from start to finish and involves a number of phases which would include the following:
■ Phase 1 – Pre-Sale initiatives. This involves your Broker compiling a list of suitable prospective purchasers, preparation of a teaser document and preparation of an Information Memorandum.
■ Phase 2 – Execution to first round offer. Formal approach by Broker to prospective purchasers ensuring all potential buyers are contacted with teaser and Information Memorandum. Maintain a strict offer deadline to generate competitive tension. Broker to evaluate offers and choose a short list of preferred purchasers.
■ Phase 3 – Execution continued. Organise management presentations and add additional information to the online data-room. Receive second round offers. Choose preferred purchaser, awarding exclusivity period (but keep it short).
■ Phase 4 – Manage to Completion. Your Broker will co-ordinate conclusion of due diligence by preferred purchaser. Negotiation of terms – consideration, earn-outs, reps and warranties. Completion of relevant legal documentation – Share Purchase Agreement
Select an Adviser / Broker
The role of an Adviser in a sale process is to maximise the sale value by positioning the business in the best light for the different buyer types in different markets. Experience of your market sector is critical and Credibility and Reputation in the sector is an added value. A Professional Broker will be able to get your business profile into the right hands of decision makers in and out of your business sector.
Your Broker will maintain the Momentum of the entire sales process, and will create a competitive environment around your sale such as to ensure best value. They will also identify credible buyers, and will ensure your confidential company information stays just that - Confidential. Finally they will be in a position to assess offers to ensure that whilst price is critical, the suitability of the final buyer is ensured
The sale of a business may give rise to a Capital Gains Tax (CGT) liability - payable by you the Seller. CGT is calculated on the difference between the market value of the assets/shares and their tax allowable cost
It is important to consult with your Tax Advisor in advance of any sale with regard to potential tax reliefs e.g. CGT Retirement Relief, which may result in all/some of the CGT being eliminated/ reduced (provided conditions are satisfied)
Securing your business is our business – it’s what we do, and we welcome all opportunity to discuss in confidence this further