Preparing your business for sale
Five key considerations
The decision to sell your business can be a challenging one. Whether for retirement reasons or to pursue other opportunities, taking that step to divest from a business that you developed and built over a period of time will carry a level of emotion.
The process of bringing your business to market should start from when you make that decision, and the groundwork that you put in at this point can add real value at the end of the sales process.
We outline below five key considerations that can pay dividends when you sell your business.
- Corporate structure
It is important to ensure that your corporate structure is clear and straightforward. Businesses are typically sold on a share sale basis, meaning that you will sell the limited company that the business sits in to a purchaser.
A clean corporate structure will provide comfort to a purchaser regarding the potential risks assumed when acquiring the shares in the company.
There may be an element of corporate restructure required to bring this about.
- Tax planning
When you sell your business, you will invariably assume a tax liability in respect of the proceeds. Appropriate planning can help manage your tax exposure. For example, if the shares in your business are held personally, you might wish to implement a holding company structure to hold the consideration and avoid crystallising a tax liability in the short term.
- Management team
The future performance of your business will largely be driven by the management team that remains post-deal. On the assumption that you (as seller) will ultimately exit the business, a prospective purchaser will want to ensure that there is a committed and knowledgeable senior management team in place to support the business.
Bringing your business to market with an established and highly motivated team is a major success factor for any business sale.
Putting the foundations and structure in place to achieve this can be a lengthy process. You may need to recruit, promote or incentivise staff to provide stability to the business in the medium term.
- Commercial review
Undertaking a thorough review of your commercial contracts is a worthwhile exercise. A business is seen as more valuable if there is a guaranteed or contracted pipeline of revenues. The level of certainty that contracted future revenues bring can be an attractive proposition.
Negotiating renewals of key contracts on sound commercial terms will provide that level of security in terms of business performance to a prospective purchaser.
- Cash flow management
Businesses are typically valued excluding cash and debt on the balance sheet at date of disposal, but including a level of normalised working capital required to continue to operate the business.
In this context, managing your working capital cycle tightly and converting illiquid assets (stock, trade debtors) to cash will add real value to the consideration you receive on disposal.
You will need to illustrate this working capital cycle over a sustained period.
The above recommendations are not critical path items to selling your business, but from our experience, considering and implementing some of these actions will help you to generate and protect value.
Selling your business is a complex process that involves several key steps towards a successful transaction. From ensuring a clear corporate structure and effective tax planning to building a strong management team and managing cash flow, each element is important in maximising your business's value. Our Corporate Finance team has extensive experience in helping SME clients prepare their businesses for sale and guiding them through each stage of the process. If you are considering selling your business, please contact a member of our corporate finance team.
