Tips and Techniques to Prepare your Business for Sale
Selling your business presents a unique opportunity to unlock the value you have worked so hard to build. Most business owners pour blood, sweat and tears into their business and with a few simple techniques you can secure a price that reflects this effort and ensure that the sale process remains as stress free as possible.
The process of selling a business is often compared to that of selling a house. Just like when you sell your house it may be necessary to make repairs to your business, some cosmetic and some structural. You may also need to make sure your “business is in order” so it’s attractive to potential buyers.
Just like a prospective home buyer may attend an “open for inspection”, a potential buyer of your business may also wish to conduct a detailed inspection. This process is referred to as “due diligence” and generally encompasses an audit of the business, its customers, sales history and an analysis of whether any risks to future earnings exist.
Regardless of the size or turnover of your business there are a number of steps you can take to maximise the sale price of your business. You should ensure that:
- You sell your business on your terms. Higher prices are generally achieved if a business is sold when sales figures are strong, the client base is robust and no foreseeable risks to the revenue stream exist.
- The financial records (accounts for the last 3 financial years are usually sufficient) are accurate, comprehensive and where possible comply with the relevant accounting standards. For larger businesses, audited accounts provide even more comfort to a potential buyer.
- Bad debts are written off, debtor days reduced and that your own creditors are paid on time.
- All legal documentation is valid and binding. You should carefully review documents such as leases, hire-purchase agreements, supplier contracts and distribution agreements.
- Your intellectual property is properly protected.
- Any information provided to potential buyers is presented in a uniform, commercial and concise manner. This process should be controlled (for this reason it is often handled by a lawyer/accountant) to ensure that no misrepresentations are made.
- Potential buyers’ access to information (especially if a formal due diligence process exists) is controlled. Each potential buyer and their advisers should sign confidentiality deeds so they cannot use the due diligence information to operate a competitive business if they do not elect to proceed.
Preparing your business for sale is a lengthy process. While the above tips are short term strategies to help you maximise the sale price of your business, there are a number of steps that you should consider implementing as soon as possible to ensure any potential exit is a smooth one. These include ensuring that:
- The business is structured correctly. Whether you have a holding company, subsidiary structure, a trust structure or a partnership, it is important that the structure is easy to understand and attractive to buyers. It is also important that the structure takes into account any tax consequences that may result from the sale of the business.
- Intellectual property such as trade marks, patents and copyright are registered where appropriate. Registration of intellectual property can greatly enhance its value and the value of your business as a whole.
- The key contracts, licences and forms are all assignable or do not otherwise prevent you from selling the business.
- Key employees are bound by employment contracts or agreements that tie them to the business after it is sold. Employment contracts should be well drafted and checked against relevant industrial awards. You should also ensure your business is not dependant on you, or another “key man”, and that there are systems and protocols in place to ensure it will remain profitable after the buyer has taken possession of it.
- Any disputes, litigation or claims against the business are satisfactorily resolved.
Selling your business provides you with the opportunity to reap the financial benefits of your time and effort and the chance to financially secure your future. It gives you the opportunity to retire, or the funding to start a new business. But, this is only the case if the process is handled correctly.
To ensure your business is sold for the highest price and the process is handled smoothly, MST is able to assist you by:
- Conducting a pre-sale review of your business to detect any issues that a buyer may raise.
- Handling the tender process (if you elect to conduct one).
- Handling the due diligence process.
- Helping you to improve your business, tidying up contracts, securing key staff and reviewing your current arrangements and agreements.
- Preparing and negotiating the sale contract.
- Attending settlement and finalising the sale.
Author: Sam Kings