But deciding to sell your business and preparing it for sale is a huge decision that requires careful planning well in advance.
One of the most important questions is: What will you do with the proceeds once you sell?
We’ve seen many cases where a business owner has thought that the only way to retire is to sell their entire business. However, on talking to them we’ve found we can show them how partnering with an organisation like PieLAB can help them step out of the business, and retain part ownership, allowing them to continue to benefit from the growth of the business in retirement.
One of the least appealing aspects of selling outright is the potential tax consequences. Very often a business owner sells their business, pays a big chunk of tax and then invests the leftover amount in property or shares, which doesn’t provide the same level of cash as they received from their investment in their business.
In my 26-year career as a chartered accountant, founder and investment director, I’ve scaled and exited multiple businesses. These are the key things I tell business owners to consider to adequately prepare for sale, attract the right buyers and maximise the value of their businesses.
1. Develop a sale plan early
You need to address the tactical priorities early on so that resources, funding and timing all fall into place
There are a stack of factors to consider in the early stages that set the groundwork for a successful sale. While your end goal might be finding the right buyer at the right time and at the right price, there are tactical priorities that require your attention early on to eventually close the deal.
As a business owner, document your knowledge along the way and have a succession plan for your employees.
2. Research your buyers
It is important to understand who your potential buyers are and what they value in a business
You need to visualise your business through the eyes of a potential buyer. If you can determine who the best strategic buyer is, you can plan your sale around what they want to see.
Understanding their motivations is vital, and it allows you to better identify what they value and what kind of future they want for the business. And you get to assist them in the process.
3. Systemise your business, now
If your business doesn’t already have operating procedures in place, start developing them at least one to two years in advance.
Develop and document processes to ensure that your business doesn’t rely solely on personal goodwill or the knowledge that’s within your head.
Again, this is a step that requires work in advance of the sale, but delivers huge amounts of value when delivered properly.
4. Eliminate “key person risks”
Think about how the business will transfer to a new owner, and how they can successfully move it forward after you have moved on.
To ensure your business is a saleable and attractive proposition, you need to get it running in such a way that it’s not dependent upon you, or any key client or supplier. It becomes a huge red flag when a founder or a key client is integral to your profitability, and will affect the sale.
Again, this step requires forward planning ahead of your sale.
5. Get your house in order
Make sure all your legal and financial documentation is in order. This includes highlighting any key financial metrics and management tools, and demonstrating their relevance.
You need to be able to tell a credible and compelling story about your future growth and profitability. Do this through developing sound financial projections, and back them up with a picture of strong potential in your business.
Ideally, you should also have contracts and agreements in place with key staff and clients, as well as registered leases (if appropriate). Having up-to-date leases provides security of tenure, which is important to most buyers.
6. Engage the A-team early on
Trying to sell a business on your own is fraught with danger – it usually takes twice as long and, invariably, people don’t get the best result.
In my experience it’s imperative to surround yourself with the right team to support you from the start of sale right through to exiting your business.
You can save money by going through the sale process yourself, but having your accountant and a good solicitor on your team is crucial.
Your accountant should help to provide advice about the best structure for the sale of the business, making sure that you get the best tax outcome at the end of it. And a solicitor should be involved too, to review your agreements and contracts, and ensure there is good transferability at the time of sale. It is important to really quiz your solicitor on whether they have acted on many mergers or acquisitions before. It is a specialist skill, and most solicitors are not experts in the field.
I’ve seen many examples where poor legal advice has resulted in poor outcomes for the person selling the business.
7. Communicate with your team
It’s important you plan the communication strategy early and help transition your customers, and your staff. You may decide to keep the process confidential, or you may decide to be transparent with your internal teams along the way.
Whatever you decide works best for your business, the most important thing is that you think it through, develop a communication plan and stick to it.
Make sure your external advisers are aware of and understand the plan.
8. Know the value of your business
One of the key steps in preparing for sale is getting your business valued so that you have a guide as to where it sits in the market.
By having your business benchmarked against similar businesses that have sold recently, you’ll have an indication of how the market may value your business, what you’re likely to receive for the sale and whether the sum will provide you with the finances necessary to move on to the next chapter.
If your business is valued at a sufficient sum, move towards listing the business for sale. However, if the sum is falling short, you need to spend more time grooming the business for sale.
9. Package your business for sale
All the information you need to convey to potential buyers should be properly packaged so it’s not only presentable, but something a buyer will want to see.
Your key documents in this regard should include an IM (information memorandum) and a due diligence report or data room.
Again, these documents should be prepared in advance of the sale to avoid delays and scrambling for documents at critical points.
10. Be proactive, not reactive
You need to be proactive in choosing when you should go to market and plan your exit from the business. In fact, best practice would be to start your business with the end in mind and always be looking towards that exit.
A great piece of advice I got was to start preparing your business for sale the day you start the business. We see a lot of prospective vendors being reactive in terms of when they elect to put their business up for sale, often due to circumstances outside of their control.
Thinking about selling your business in the future? Get in touch with PieLAB to see how we can help maximise the value of your business before it comes time to sell.