Top 10 tips for planning the sale of your business
Monday, 04 November 2019
1. Start early
Over the years many business owners have asked me to sell their businesses as quickly as possible. Sometimes there has been a traumatic and unforeseen life event that has forced the issue. But often it’s simply the result of underestimating how long a sale process can take and how much extra value can be achieved if preparations are carried out well in advance.
2. Write it down
Selling a business is no different to achieving any other goal; you’ve got to write it down and put a date on it. According to studies in America, you are 42% more likely to achieve your goals if you write them down!
3. Consult professionals
I would say this wouldn’t I, but consulting professionals really should be viewed as an investment in your future not as a short-term cost. A financial advisor should be able to advise you on how much money you need to live your desired future lifestyle. A solicitor will be able to protect you in the legal documentation regarding a sale. And a corporate financier, like me, will be able to guide you through the sale process and help maximise your post-tax sale proceeds.
4. Ensure the price will be enough to fund the next chapter of your life
Many business owners enjoy a very healthy financial return from their businesses. They have no doubt taken many risks along the way, and now they are enjoying the fruits of their labour. However, once the business has been sold you must be confident you will have enough money to live the lifestyle you want. A financial advisor will help make sure you take absolutely everything into account, including financial contributions you might like to make to family members in the future (e.g. weddings, house deposits, education, etc).
5. Take action
If your business is not currently worth enough for you to sell, start working on bridging the gap in valuation. What is going to increase the value and attractiveness of your business? Do you need to generate sales growth? Reduce waste? Change your team’s self-limiting beliefs? Diversify into new areas? Whatever it is, take action.
6. Bear in mind your post-sale consultancy requirements
If you have a specific retirement date in mind, don’t forget to factor in the time commitments a buyer is likely to demand from you after a sale has completed. This will probably be more onerous for those business owners who are still integral to the day-to-day operations of the business. That’s a great reason to start extracting yourself from such duties as best you can before a sale.
7. Turn the tables – think what you would be interested in if you were the buyer
When preparing your business for sale it is important to consider candidly the strengths and weaknesses of your business. You are no doubt experienced in business, and you know your own industry inside and out. So why not try putting yourself into the shoes of the buyers. What would you perceive the risks to be and how could they be mitigated? What would you consider the opportunities to be and how could they be exploited? Start actioning well before a sale.
8. Review due diligence questionnaires and prepare a data room
A buyer is highly likely to undertake due diligence on your business before they complete the deal. A good corporate financier should be able to help shield you from some of the enquiries, but it still tends to be a pretty labour intensive and invasive process. You can prepare for this in advance by familiarising yourself with a standard due diligence checklist and making sure you have as much of the information to hand as possible. Such checklists can be provided by your professional advisors.
9. Nail down your contracts
The due diligence checklists mentioned above may well highlight any anomalies or absences of your commercial contracts with customers, suppliers, assets, funding, staff and properties. Now is likely to be a much more appropriate time to get these in place rather than scramble for them in the busy weeks leading into the completion of a sale.
10. Lock in key staff – consider Enterprise Management Incentives (EMIs) and growth shares
The journey to a successful sale can be challenging, and it’s not necessarily something business owners can do on their own. They need to take their teams with them, keeping them motivated and incentivised. A great way to achieve that is to reward key members of the team with a small amount of equity in the business. By using share ‘options’ you can delay the actual ownership of the shares until immediately before a sale takes place, and it can be hugely tax efficient.
If you’d like to explore the potential sale of your business, please get in touch. Call 0330 024 0888 or email email@example.com