How to prepare your business for sale
Jeff Barber explains how to present an appealing and inviting business proposition.
It can take many months to plan a business sale effectively, but it is advisable to consider an exit strategy as far ahead as possible – even several years. This helps you to define who the ideal buyer would be, and take practical steps to make your business as attractive as possible to potential purchasers.
One of the fundamental aspects of your business sale is being clear about the reason why you are selling. If you can’t clearly articulate this, you may arouse suspicion in prospective buyers that there is something to hide.
So, what else do you need to consider before putting your business on the market?
Know your objectives
What do you want to achieve from the sale? Your main objective may be to secure the highest price, for example, or to sell as quickly as possible. Once this is clear in your mind, you should be able to define your objectives for the professionals helping you, and guide the process more effectively.
Valuing your business
It is crucial to obtain a professional valuation for your business from an industry specialist. A recommended business broker or accountant will take your objectives for the sale into account and assess where your business lies within the market.
You can also carry out your own research, investigating recent sales of similar businesses in your area, for instance. This will help you to gain a general understanding of business values, and the length of time it might take to sell your own.
Put your accounts in order
Making sure your financials are organised and accurate will instil confidence in potential buyers. They need to see a range of clear and accurate financial documentation, including:
- simplified company reports
- historic turnover and profit figures
- asset valuations
- details of liabilities and debt
- profit forecasts
- incorporation documents
- leases and contracts
At the most basic level, potential purchasers will look for the level of income generated by your business over the last few years, and the corresponding cost figures. You should also provide a realistic and detailed projection of future sales and profits.
Overhaul your business premises
First impressions count, so cleaning and tidying your premises is a good idea prior to placing the business on the market. Although it may not affect the amount offered, it draws people in, and demonstrates your care and attention to detail.
Review systems and processes
If you have run your business for a long time, it is easy to forget that some of your systems and procedures may be a little outdated. Making sure you use effective, streamlined and modern invoicing and credit control methods, for example, shows that you understand the importance of efficient in-house systems and their positive effect on business operations as a whole.
Due diligence
You should check your contracts for any anomalies or uncertainties before you present your business to the market. Staff employment contracts, supplier terms and conditions, and customer and legal contracts all need to be reviewed for any outstanding issues or potential problems that could derail a potential sale.
You should also consider the intellectual property owned by your business, and if it is registered and up to date. A crucial factor for any potential buyer is their right to use the trademarks and patents associated with their investment, something they'll be sure to check.
Taking steps to increase the value of your business – whether major changes are needed, or only minor adjustments – will ultimately allow you to present an appealing and inviting business proposition to interested parties.
Allowing sufficient time to prepare is paramount, so you can decide on your main objectives without pressure or risk of error.
About the author
Jeff Barber of Selling My Business, part of the Begbies Traynor Group, is a corporate finance specialist who concentrates on acquisitions, disposals, MBOs/MBIs and raising development capital, predominantly in the owner managed SME sector.
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