You’ve worked hard for years. You have made sacrifices. Your family recognise you…..just, but you have built up a business of which you are, rightfully, proud.
Now you feel that it is the right time to sell it on; to cash in your chips
What should you do now? How do you get the best price? How do you keep disruption to a minimum? What about tax? What timescale are you looking at? How do you avoid running up unnecessary fees?
With some careful planning and good housekeeping you should be able to achieve the following goals:
Get the best price
Avoid wasted costs
Minimise tax on the sale
To be able to achieve these goals you should be looking at a 3-5 year plan. During this time you should “groom” the business for sale. This will include the following:
Distance yourself from the business
The acquirer wants the business not you. This doesn’t mean that you will not be required to assist in the handover or that there may be an element of staying to achieve an “earn-out” but the buyer needs to ensure that the business will function without you.
The buyer is probably going to be a bigger business than you. They may not appreciate that you have all the figures up in your head. They will expect to see:
Management accounts: hopefully bearing some resemblance to the year end figures!
Cash flow forecasts
Sales order pipeline
Active credit control
Such systems will make a big difference to the way your business is perceived. Improve your corporate governance and you will attract a greater interest from potential buyers.
The value of a business is in its future earnings potential. Often this is estimated using historical figures. Certainly accurate historical figures will give credibility to projections.
Consider having the year end accounts audited if not done already.
Clear any unreconciled balances that may have been carried for years.
Reduce the number of accounting estimates. Carry out a stock take instead of looking across the stock room and saying “ooh it’s about……”
Remember, the buyer will invest reasonable sums of money in financial and other due diligence. If there are weaknesses or problem areas in the financial records they will be reported back to the buyer who may well use them to negotiate the price downwards.
Remove the weaknesses now so that the results in the 2 or 3 years leading up to the sale will be untainted.
Many businesses incur costs which, while legitimate, may well be influenced by the owner manager. These could be the type of car used for the business, the type of entertaining, the employment of family members. The new owners may have other ideas and may not incur these costs giving rise to greater profits.
You should think about changing these costs in order to reflect the true profitability of the business leading up to the sale or, at least, keep records of these costs to present to the potential buyer with a view to them being adjusted for in the purchase price.
Remove those that are not needed for the successful running of the business.
Review accounting policies
For example, consider disclosing Research & Development costs as capital rather than as a revenue expense.
Clean up the balance sheet
Sell surplus assets. Scrap obsolete stock. Make realistic provisions for doubtful debts.
Buyers will not pay for valueless assets.
Do you own the freehold? If so, do you want to retain this?
Are you looking to renew a lease? If so, be flexible, keep short if possible.
Does the business own an investment property? Buy-to-let, holiday home? Consider removing it from the business.
Not everyone may be as enthusiastic as you to sell their shares. Have full and frank discussions now not at the end when the deal is about to go through.
Renew lucrative ones. Allow unprofitable ones to lapse or even cancel them. Take advice early from your solicitors to ensure they can remain with the company if there is a major change of ownership.
Ensure that the right amount of investment is made into the management team but beware of costs associated with this.
Get your accountant on board early. They will be able to advise you on the tax position and consider what action may need to be taken to mitigate the tax.
There are, of course, other considerations but for the sake of brevity I have kept to those that, in my view, have the biggest effect on achieving those 4 goals.« Back