Preparing a business for sale
Businesses are so often sold at values beneath their potential, allowing buyers to achieve additional benefit by identifying hidden values and eliminating unnecessary costs.
However, with a little help, business owners can make sure that they achieve the very best price for their company, while benefitting from new efficiencies in the meantime.
‘Window dressing’ your business as a way of preparing it for sale can drastically increase the valuation put on your company by a prospective purchaser. This preparation will also help you to present your business to potential buyers in its best possible condition in terms of efficiency, accounts and client-base.
The Value Improvement Scheme
This is central to preparing a business for sale. It involves taking any opportunity to improve revenues while reducing operating costs.
Although this sounds straightforward enough, it is not simply to do with cutting all costs – just those that add little to the value of the business. Spending on other elements that enhance the company in the eye of a prospective buyer should actually be upped.
In addition to the changes in your spending activities, people preparing their businesses for sale need to consider how best to capture ‘quick wins’. This will involve casting a strategic eye over the customer base, the market and the business’s product positioning.
These short-term value-adding wins will improve profitability in time for the sale date, but you must also look for longer-term strategies that will build more slowly, but will be ready to turn a profit by the sale date.
These value improvement initiatives are best when implemented over a long period of time and up to a couple of years, so it’s always best to start preparing your business for sale well in advance of when you actually want to sell it.
Factor in seasonal allowances - you want to maximize the value of your business by selling at the time of year when you have the most working capital. An additional timing consideration is whether you want the sale to be based on historic or prospective earnings: by delaying a sale until perhaps two months before the end of a trading year, it may be possible to secure a sale price based on improved current year earnings compared to a lower price if the sale is based on historic earnings.
The next steps
Once you have worked over time to increase the value of your business, the next step is to get an official valuation done. Use the help of an accountant, corporate adviser or solicitor who can help you use the correct valuation method for your company. This will also enable you to take away a realistic valuation.
Various valuation techniques can be used, including valuation based on a multiple of earnings - most suited to profitable companies, one based on discounted cash flow - suited to mature, cash-generating firms and asset valuation – suitable for a stable firm with significant assets such as property or manufacturing assets.
One you have a valuation it’s time to identify possible buyers and market the business for sale.
A listing in a businesses for sale publication is one of the very best ways to ensure potential buyers are aware of your company sale. Such publications allow vendors to reach the highest number of serious buyers, with less risk of time wasting and the greatest chance of gaining the best price.
Buyers will contact sellers after seeing adverts in publications and this is the point at which the process of negotiating a price and terms of sale can begin.
Meeting with potential buyers
When meeting potential buyers many of your actions will depend on whether you would prefer to keep your business’ operations and practices confidential or not. If you are able to be open, you may want to show the buyer around the premises and show them a set of accounts, including a forecast for the years to come.
It is at this point that all you hard work to try to boost the company’s value will hopefully pay off.
A serious buyer should then put forward an indicative offer and hopefully, it will be close to what you expect to get for your business.
Finalising the deal
Once an indicative offer has been submitted, you can continue to negotiate on the price and terms of the offer. Once everyone is happy the timescale and structure of the takeover will need to be worked through. Business owners will again benefit from professional advice this point.
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