Are you a business owner who is struggling to take a summer holiday without your business being affected? If your ultimate goal is to sell your business yet you’re struggling to take a holiday, consider implementing some of these tips to ensure your business is attractive to any potential buyers and that you can maximise your proceeds of sale.
Are you your business?
If you’re not doing so already, you need to start working on your business rather than in your business. Having a business that is entirely reliant on you is not an attractive proposition for any buyer, as what would they be acquiring?
And if a buyer isn’t seeing your business as an attractive opportunity, they’re likely to either not be interested in buying it, or want to pay a minimal purchase price, or may require you to stay on after completion, which may not have been your plan.
Consider putting in place policies and procedures to ensure that you don’t need to be involved with everything and that key information relating to the business isn’t stored solely in your head. You may find that there are various tasks or processes you can automate. If it’s not a decision that helps drive your business forward, it’s not one that needs your input. Framed in the right way, you can use this as an opportunity to empower your employees to help with non-critical business decisions.
Who is your support team within your business? Ensuring you have a credible management team who can continue to drive the business forward and build on your success when you exit will make your business far more attractive to a buyer and likely result in a higher price being paid.
Financial information
Poor financial information will not offer any comfort to a buyer. Regardless of whether or not you’re in a sale process, it’s not healthy for your business as it prevents you from identifying financial holes which, left untreated, could really devalue your business. Understanding your business’s working capital cycle and being able to drive efficiencies in its working capital management can unlock additional value in a sale process.
Having systems in place whereby you’re able to generate good-quality, up-to-date financials not only makes good business sense but makes it much easier for a buyer to value your business. Generally speaking, the more profitable a business is, the more valuable it is to a buyer.
One of the first things a buyer will do, to ascertain whether your business is a good proposition for them, is to undertake financial due diligence. If you’re able to, make it as easy as possible for your buyer to understand the value of your business. Being able to demonstrate growth over a sustained period, and highlighting future growth opportunities for a buyer, helps sets negotiations off on the right foot. Not only will this make the process smoother, and hopefully less stressful for you, it will also likely improve the buyer’s perception of your business and may help reduce the chance of any downward adjustment once the sale price has been agreed.
Risk management
Managing the risk of your business improves resilience and reduces the risk profile in the eyes of a buyer.
Customers and suppliers: if your business is reliant on a particular customer or supplier, what happens if that relationship comes to an end? In certain industries such concentration cannot be avoided but where possible consider mitigating this risk by strengthening such relationships or diversifying the business’s offering.
Intellectual property: ensure that any intellectual property (eg. business name, trade marks) used by the business is actually owned by the business. It’s very difficult to persuade a buyer to pay for something owned by a former employee.
Employees: do your existing employment contracts contain necessary provisions to protect your business? It’s likely you’ll want key employees to be under restrictive covenants to prevent them leaving your business only to join a local competitor or set up in competition. You can also bind employees to confidentiality obligations so that your business’s confidential information is protected.
Build your trusted advisor team
The sale of your business is likely to be one of the most significant transactions you will undertake. It’s therefore crucial to have the right advisor team around you to help guide you through the process.
Experienced advisors will provide valuable advice to assist you with making your business ‘sale ready’, help maximise value and support you in completing a successful transaction. Don’t underestimate the length of time it takes to get ready for a sale and complete the transaction. As the saying goes, failure to prepare is preparing to fail. The sooner you can begin, the better the chance of a successful transaction.
Contact Kirsty Simmonds, Partner and Head of the Corporate and Commercial team at DFA Law on 01604 609560 or 07884 549372 or visit www.dfalaw.co.uk
