Business Sale Readiness Factor #6: Systems and administrative housekeeping
Monday, 09 August 2021
We all know that if you want to sell a house, you tend to give yourself a better chance of attracting buyers if you make sure everything is in order. That means emptying out the garage, tidying the rooms, cutting the grass, brewing fresh coffee, etc. You can’t change the location of the house, nor easily change the number of rooms it has, but you can make some important cosmetic changes which might make a real difference.
That analogy applies to the sale of a business. For location and room numbers, read business sector and size. But for the cosmetic stuff, there’s plenty of “tidying” you can do to make sure your business is as attractive as it can be. Some of it really is as straightforward as keeping the premises neat and tidy. On occasion, I’ve sat in the cluttered office of a business owner wishing to sell their business, with paperwork stacked in enormous piles everywhere. The first impression that gives to prospective buyers is far from ideal!
So, what else can be done? I set out below some basic characteristics of businesses that tend to be ‘sale ready’ in this regard:
1. Have well documented and understood operating systems and procedures
This doesn’t have to be chapter and verse, but some sort of staff manual together with clear job descriptions and lines of authority are a must. Many businesses have this information only in the heads of a few key individuals, some or all of whom might be the business owners who will be looking to exit after a sale. Understandably, many buyers will consider this to be risky, and may even walk away. What if those individuals decide not to hang around after a sale, or, heaven forbid, something happens to them? The aim is to document systems and procedures to help the business run as effectively as possible, regardless of who’s working in the business on any particular day.
2. Keep copies of all key signed contracts relating to staff, customers and suppliers
I worked on a deal a few years ago whereby my client provided me at the commencement of the sale process with an unsigned version of a contract with a major customer and assured me that the signed version was safely stored in the locked safe. When it came to due diligence, the signed version couldn’t be found. That put us on the backfoot, and we needed to go back to the key customer and ask for a signed version, which wasn’t an easy or quick process, as it needed to go to the very top of that organisation for signing. The deal was delayed a month as a result.
It really is worth going through this stuff in advance of a sale, ideally with your chosen corporate solicitor who can review the terms of those contracts and make sure they’re all in order too. Some may even have ‘change of ownership’ clauses whereby they become null and void if your business is taken over by new owners. Watch out!
3. Maintain up-do-date company statutory books and records
Company secretarial work is far from glamorous, but it’s essential that everything is in order before taking your business to market. The statutory books and records will, amongst other things, register critically important information such as the identity of the owners of your company. I’ve seen deals delayed because the statutory books and records have needed to be updated, or worse still, they’ve been recreated entirely because they can’t be found. Again, this is a job for your corporate solicitor to help you with.
The above key factor is taken from our free and insightful ‘Sale Readiness’ diagnostic tool which aims to give business owners a score on the nine key factors determining:
- How attractive your business is for sale;
- Whether you will maximise the final business sale value; and
- The efficiency and smoothness of your business sale process.
The online tool takes only five minutes to complete and your results will highlight the top three factors which are working well and the top three factors which require the most attention before you consider a business sale process. You will also be able to see how you compare to the global benchmark (average scores of all completed diagnostics) on each of the nine factors.
Of course, if it would be helpful, my team and I would be pleased to discuss your results and guide you on your next steps. In addition, each month I will be releasing a blog, just like this one, on each of the nine business sale readiness factors to help bring them to life.
Next month’s blog: Business Sale Readiness Factor #7: Risk management