Preparing your business for sale

Business founders come in all shapes and sizes and with an infinite set of motivations for launching an enterprise.

However, an aspiration that many will share is the ultimate sale of their business -often the most important decision many business owners will make.

For some, this may have been the sole reason they set up a business in the first place, for others, it is an ambition that develops over time, in step with the growth of the business and their evolving entrepreneurial ambitions.

Either way, working towards an exit after many years of running your business can be a stressful process, one which can impact both family and business life.

6 steps to a successful sale

We support a great many businesses through this process, working with the owners to ensure they are ‘sale ready’.

There are a number of steps that businesses can take to best position themselves for a successful sale.

Prepare Early

1. Prepare early

Take a step back, review your business practices in the way a potential buyer would and start mapping out your exit strategy.

As a business seller, one of your primary objectives is to maximise the value of your business.  To do this, preparation is key and the best way to achieve optimal results is to start as early as you can. Even if you don’t intend to sell for a few years, the earlier you start taking steps focused on your goal, the better the result is likely to be.

As part of your exit planning, reviewing existing processes and making necessary changes or, where required, implementing new business practices is recommended. Having these in place and being able to demonstrate their effectiveness in advance of a sale will make your business significantly more attractive to potential buyers. Taking professional advice at this point will be more than worth it in the long term.

Prepare Early

2. Make first impressions count

As is similar with any business pitch, when it comes to meeting potential buyers, first impressions have a powerful impact and are typically formed very quickly.

If you have followed step one above, and started your preparations early, you will enter the process organised, primed for success and well equipped – which will instantly put you at an advantage, but there is more you can do.

Make sure that any premises associated with the business are well maintained – consider them your ‘shop front’. Also ensure your representatives reflect your business ethos and demonstrate their value to the business – potential buyers may be looking to retain good employees.

It’s very possible that a buyer may be shortlisting numerous potential acquisitions and a negative first impression is an easy way for them to quickly remove your business from that list. Enter into the process in a coordinated manner and on your own terms, rather than dipping your toe or falling into it.

Cultivate your businesses kerb appeal

3. Cultivate kerb appeal

Consolidate that great first impression by also presenting the commercial aspects of your business as attractively as possible, demonstrating ‘kerb appeal’.

To show potential buyers that your business is a well-cared for, smooth operation with great prospects you should be prepared to clearly articulate your commercial viability. Here are a few questions to ask yourself which will help you do this.

  • Are your financial records, relevant management accounts and customer data all in order? Are all records accurate and supportive of the business story you are putting forward?
  • Have you presented your business strategy effectively, with detailed forecasts for the years ahead and beyond any potential sale event? You need to be able to demonstrate a clear yet achievable path for the future.
  • Can you highlight any potential new revenue streams, cost reductions or efficiencies that could increase profits? The more research and insight you have to support these ideas, the more persuasive they will be.
  • Are you confident that all the necessary legal, compliance and regulatory information is easy to access, accurate and robust? This includes (but is not limited to): incorporation documents; share registers; property documentation; intellectual property; data protection; employment contracts; and supplier and customer contracts.

Due diligence such as this can uncover unexpected issues, for example missing documentation, incomplete data or numerous other challenges that could slow down or stop a sale in its tracks.

Giving yourself plenty of time and getting prepared early will enable you to identify any issues with plenty of time to resolve them so that they do not become a problem for you, your buyer, or the value of your business.

Consider your businesses value

4. Consider value

There are many factors to consider when valuing your business.

These intangible assets can make it challenging to put a true value on your business.
So getting a professional valuation will be essential.

An experienced adviser can help here, and there are various techniques they may use:

  • A straightforward price to earnings ratio or multiple of pre-tax profit.
  • Research of comparable business sales.
  • Estimation of future growth and profitability.

A price can be estimated for physical assets, however, there are many other less tangible ones to consider, such as:

  • Your business’s brand and reputation
  • The value and loyalty of your business’s customers
  • Any patents, trademarks or copyrights owned by the business
  • The strength and experience of the team (including management, operations and sales)

These intangible assets can make it challenging to put a true value on your business, so a professional valuation will be essential.

Put the right business structure in place

5. Put the right structure and succession plan in place

A key focus for any business buyer is the structure and leadership of a business.
But equally, how it contributes to its successful operation and future growth.

A buyer will often take a less than favourable view of a business that is highly dependent on one key person. A business owner who is running the entire operation can be seen as a disadvantage, or something that can adversely affect the business’ value because it could put the business at risk. A buyer will want to ensure that the business is capable of operating, and growing, in the seller’s absence.

There needs to be a succession plan.

A corporate structure that shares the responsibilities of management across a broader team presents a far more attractive option by demonstrating you have a credible management team, who can continue to drive success when or if the owner steps down.

Seeking to put this structure in place ahead of a sale is a process that many successful business founders seek to implement.

Bringing the management team into the shareholdings can help businesses incentivise their senior personnel, locking them into the company to provide continuity beyond the sale and the scope to grow and develop beyond this.

Share option schemes such as an EMI (Enterprise Management Incentive) Scheme can be designed as a great way of incentivising management for the long term as well as allowing them to participate in the value realised from the sale process in a tax-efficient way.

Get the right advice for you


6. Get the right advice for you

It is important to take a holistic view of your business when you are positioning it for sale.

Good advisers will understand that a business owner or founder’s relationship with their business is far more than just commercial.

Often a successful business is the result of the blood, sweat and tears of all those who have worked on it over decades, into which they have poured the best part of their intellectual and emotional (and financial) resources.

The sale process can be complex and stressful and can take a huge toll on your emotions. Working with advisers who understand this and can share the burden can save you a great deal of precious energy and time.

Positioning your business for investment or a sale is all about taking a 360-degree view of it and understanding that it does not exist in isolation.
A professional advisory team with expertise in legal, tax, financial and accountancy matters can help you do this.

A team of advisers can help make sure your own personal ambitions are fully accounted for and hopefully realised by the ultimate sale or investment and that it is tax-efficient, also offering investment advice where appropriate.

Pre-sale tax and wealth planning can ensure the sale proceeds are received as tax efficiently as possible and can mitigate inheritance tax with the use of family trusts and protect the proceeds for the future.

There are a number of tax reliefs available to sellers, including Business Asset Disposal Relief and roll-over relief which can be explored and maximised.

Sellers may want to invest the proceeds of the sale or pass on to family members, which if fed into the mix early, can be planned for from the initial stages.

Summing up 

Preparing to sell your business is all about preparation and seeing it from the buyer’s perspective.

Taking professional advice early on in the process from experienced people will generate the best results.

If you would like support in planning for the sale or purchase of a business, please contact us.

Alistair Scott-Somers

Director, Corporate Law

Alistair joined Progeny Law in October 2016 and heads up the Corporate team.

Learn more about Alistair Scott-Somers

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