Over the next few months we are going to be writing a series of blogs that may be of interest if you are thinking of selling your business. Some of the blogs will include expert insight from our friends at Shaw and Co – the award winning corporate finance experts, who offer advisory services to UK SMEs on funding, buying and selling businesses.
To begin with, we are going to look at some of the areas you may want to think about in advance of selling your business.
When it comes to running your business, you are the expert. It’s generally true to say that the best decisions that you make for running a good business will also be the best decisions to maximise the sale value of your business. However, there are some areas that you may want to pay particular attention to in the months, or years, prior to putting your business up for sale.
These may include:
If your business is likely to be more attractive to a certain type of buyer (for example a trade buyer), then it may make sense to maximise the attractiveness to these individuals, for example by focussing on particular groups of customers.
Quality of Earnings
Being able to support future earnings through contractual revenue or embedded recurring revenue will provide comfort on your underlying and future earnings potential. Furthermore, over reliance on only a few customers for your income can present a significant risk to a would-be suiter, hence work should be commenced to reduce customer concentration to reduce your earnings risk profile.
Any costs that would not be incurred by a potential purchaser should be identified and, where possible removed, and operational efficiencies implemented where possible in advance of the sale. Moreover any costs that may be discretionary in the short term, that are not central to the business’s future performance such as research and development and advertising should be avoided.
If a business possesses assets that may not be required or fully valued by a purchaser, then these should be removed before a sale if possible. Equally if a business has assets, such as property, that may be understated in the company accounts these should be revalued.
Make sure that any PAYE/VAT and corporation tax matters are up to date, and any queries resolved, before commencing a sale process.
Any pension schemes that have any elements of valuation uncertainty, such as defined benefit schemes, should ideally be removed from a sale, or commuted into a defined contribution scheme.
Depending on the type of purchaser, the strength of a company’s management team is likely to be of high importance. This is especially the case if the company owner is likely to exit the business soon after sale. Ideally the company should be able to operate on a day to day basis without any input from the owner.
The company should be appropriately staffed before the sale process commences.
Accounting policies should be reviewed in order to ensure that they would potentially be appropriate for the type of buyer being targeted. This may include areas such as profit recognition on contracts, depreciation of assets and stock valuation.
It’s important in a sale process that a company produces budgets and management accounts on a monthly basis to reasonable deadlines in order to provide up to date trading information, along with regular profit forecasts. This will also help to provide confidence that the business is well managed and understood.
Every business decision in the run up to a sale process should be reviewed and considered in light of how it will be viewed by a potential purchaser. A business is bought on future earnings so having a robust forecast projection supported by a detailed business plan and strategy is an essential requirement.
Any outstanding legal issues should be resolved where possible and all legal matters, including routine matters such as companies house filings and potentially more complex issues such as litigation resolved.
Any potential environmental liabilities will be a concern to any potential purchaser. Therefore, these matters should be addressed where possible.
If there are ways of raising a company’s profile before commencing a sale process this is advisable.
What it means for the business
Making the decision that you want to sell your business is likely to be a difficult one. If you want to get the value that you believe your business is worth, then this decision should also not be one that is rushed into. It may require months, if not years, of planning and preparation. In order to assist you with this it may be appropriate to engage an appropriate senior finance resource. A finance director, on a full or part-time basis, can help you to both run your business and prepare for a potential sale.
Artemis Clarke helps business owners find finance directors that have the experience to support them. Not just to help them survive, but to help them thrive – whatever their business goals.
Speak to us about how the right financial help could make a difference to your business. Call 0117 244 1891 today.
If you would like to contact Shaw and Co you can book an initial discovery meeting by calling 0330 127 0100 or visit www.shawcorporatefinance.com