As a business owner, the prospect of selling your business can be both exciting and daunting. There are many reasons to sell your business, including retirement, pursuing another business venture or moving onto the next chapter of your entrepreneurial journey.
It is, however, crucial that you approach selling your business with careful consideration and preparation so that you get the best deal possible.
There are many things to consider when selling a business. To maximise its value, you should:
- Determine the value of your business
- Establish robust systems and procedures
- Prepare the right documentation to facilitate a smooth and efficient sale
- Maintain effective communication between all parties
In this blog, we will explore further the key factors that you need to consider when selling your business.
Are you a business owner thinking of selling your business?
Selling a business requires careful planning and preparation, considering the significant effort and dedication that most entrepreneurs invest in building their companies.
Exit planning plays a pivotal role in aligning the timing, market conditions and overall health of the business to maximise the price you can achieve during the sale.
How long does a business sale take?
Preparing your business for sale and establishing your exit strategy is a long-term process.
The point from agreeing heads of terms with a buyer to completing depends on the complexity of the deal and can take from several weeks to several months.
It is crucial to maintain communication between all parties throughout the process, as miscommunication is the most common cause of unnecessary delays and deals falling through.
How to prepare a business for sale
As mentioned above, preparing for a business sale is not an overnight process – it takes time to get the business ready to sell.
The more profitable the business, the more robust the operational processes are, and the more value you will receive.
Prospective buyers are looking for a profitable business that can operate without the owners. This can be more challenging for a small business where the owners are integral to making it tick, so it can take a few years to get the company ready for a potential buyer.
Get a business valuation
The first step to selling your company is to obtain a business valuation. This needs to be carried out by a qualified professional such as an accountant.
The valuation process will look at your past three years of financial statements, analyse your business assets (including intellectual property), review your customer base and look at any potential future growth opportunities.
From this, you will be able to understand the true value of your business and understand the factors required to ensure that you achieve the highest price possible.
Getting a valuation is a fundamental part of the sales process – but it is just the starting point!
Understanding the value of the business and identifying the key factors that drive it provides valuable insights into the areas that require your attention. This understanding will enable you to maximise the asking price for the sale in the future.
Tax Planning
Once you have established the sale price of your business, you will need to work with your accountant to ensure that the sale is brokered in the most tax-efficient way.
For example, you may wish to sell your company shares rather than the assets of the company.
Finding the potential buyers
There are many factors to consider when looking to attract buyers. In some industries, you can contact a specialist business broker who will work with you to negotiate a deal.
You may look to sell your business to your employees, or one of your existing customers or competitors may be potential buyers themselves.
Your business may also be attractive to industry contacts or suppliers, where your trading activities would be an additional string in their bow, leading to an increase in their market share.
Reviewing potential buyers
Whilst it might be tempting to sell to the highest buyer, it is crucial to take into account other considerations.
These include evaluating the buyer’s industry experience, understanding how the deal is being financed, assessing their track record in successful business acquisitions, and gaining an insight into their vision for the future of the business.
The buyers not only need to be able to complete the transaction, but they also need to be the right fit to maintain and grow the business.
For example, you may not wish to sell to a potential buyer that does not want to maintain your employees.
Get your financial records and business documentation ready
Part of the selling process will involve reviewing relevant paperwork, so before a deal has been negotiated, it is important to make sure that you have checked that all your financial records and business documentation are in order.
Prospective buyers will not only look at finance records, but they will also look at contacts, terms of business, employee contracts of employment, customers, insurances, leases, licenses, intellectual property and regulatory documents.
All this documentation should be readily available so that it can be distributed to financially qualified potential buyers. Having copies of your business’s financial records in advance can not only save time but makes the purchase more attractive and can prevent sales transactions from falling through.
If you’ve shareholders in your company, then you should also revisit the shareholders agreement to ensure a smooth selling process.
Address and correct any current business issues
As you prepare to sell your business, a crucial step involves assessing its current state and identifying any existing gaps that require attention. Taking action to address these gaps is essential.
For instance, if you lack a copy of the current lease of your premises, it is necessary to obtain one. Additionally, if certain business processes are faltering or you are still heavily involved in operations, it is important to rectify these issues before proceeding with the sale of your business.
Carry out due diligence
Due diligence plays a crucial role in the sales process, as it allows the buyer to thoroughly examine the business.
The primary purpose of due diligence is for the buyer to gather comprehensive information, evaluate any potential risks associated with the business and verify the accuracy of the seller’s claims.
Typically, a team of advisors, including solicitors and accountants, are involved in this process. Through due diligence, the buyer can make an informed decision and assess the true value and future prospects of the business, ensuring that they are satisfied with the appropriate purchase price.
Part of the due diligence process is drawing up the contracts in relation to the business sale. At this point, you will be working closely with your solicitors to ensure that you understand all the legal implications of your company sale.
What happens after you’ve sold your business?
What happens after you have sold your business depends on the terms of the sale. Part of the agreement may be that you take a full-time job with the new owners for a specific period of time to ensure a smooth transition.
If there is an agreed transition period, you will need to work closely with the new owner to effectively facilitate the handover of operations. This will include transferring company finances, introducing relevant business contacts, sharing insights about processes and relationships, and providing ongoing support to the new buyer in transitioning employees smoothly.
Communication is crucial at this stage for maintaining business continuity. In most cases, the buyer will not pay the full amount on completion, but instead, there are additional payment tranches tied to specific milestones and subject to certain warranties.
Therefore, maintaining continuity is fundamental when transitioning to the new owners, as it ensures that you receive all the money due, as per the agreement.
If you have agreed to any non-compete agreements or restrictions during the selling process, you need to ensure that you adhere to these terms. Typically these clauses would prevent you from starting a new venture that would be in a similar industry or competing with the buyer within a specific time frame or geographical area.
How can Spotlight Accounting help?
At Spotlight Accounting, our expert accounting team has assisted numerous businesses in successfully completing their sale. We offer comprehensive support for both the due diligence process and the actual sale of your business.
In addition to this, we can work with you in advance to assess the value of your business and provide insights on potential changes that can enhance your returns.
Start your exit planning today and unlock the full potential of your business with our assistance. The sooner we begin, the sooner we can work together to maximise your business value.
Contact us today to get started!
Conclusion
Preparing to sell your business requires thoughtful consideration and thorough preparation. Exit planning encompasses various factors that need to be taken into account, such as the timing of the sale.
Giving due attention to these factors will ultimately enable you to secure the best possible deal for the time and effort that has been invested into building up one of your most valuable assets.
It is fundamental that you work closely with your advisors and keep communication channels open throughout the entire process.
