Getting the best price for your business takes preparation
Philip Riding gives his top five tips for selling your company.
If you’re thinking of selling your business, it really pays to plan ahead. In my experience, you’ll never get the best price if you’re reactive or rushed. You need to prepare properly as a vendor. Here are my top tips:
You need a realistic expectation of value, so take the advice of experienced individuals, such as your accountant or corporate finance adviser. If you have a figure in mind, but it turns out to be badly wrong, you’ll have a nasty shock waiting around the corner. Of course, if your advisers tell you that your business is worth less than you expected, you can always take a step back and re-evaluate; you’ll have lost very little in terms of time, effort and money.
DO YOUR HOMEWORK
Use the time prior to starting a sales process to “get your house in order”. You will need financial forecasts demonstrating future growth potential and your historic numbers will be scrutinised in a due-diligence process. If there are issues that need explaining – one-off costs and non-recurring fees, for example – this needn’t be a problem, as long as you are prepared to answer questions and place your business in the best possible light. Using an advisor in this process can add significant value.
CHANGE THE WAY YOU WORK
In the event of a valuation being lower than your expectations, which doesn’t seem like the right level of recognition for all the years you’ve put into the business, why not spend that little bit longer with the company making some changes? Brainstorm with your accountant particular ways of adding extra value.
At the same time, it can often be a good idea to separate yourself from the day-to-day running of the business, as if you’re integral to the operation, the buyer may not pay a premium when they know you’ll be gone shortly after a sale. You might want to devolve operational responsibility to second-tier managers. This could involve an up-front cost, but may prove a good investment in the long run.
BE REALISTIC ABOUT TIMESCALES
Six months is often considered as a realistic time for the process from start to finish. There are all the documents and financial information to pull together before the negotiation even gets under way. The process could stretch out for 18 months if you need to make internal changes to the business in advance of the sale.
THINK ABOUT TAX
This is an area all of its own, of course. You need to thinking about this more than a year in an advance, as certain reliefs will only apply if you have been a director or officer of the business in the 12 months prior to the sale. The way you structure the sale needs to be tax efficient, so take professional advice, particularly if you have kids you want to pass benefit to.
In conclusion, selling a business can be a complex process with lots of parties involved. Meanwhile, you still have a business to run. That’s why it’s critical to get the right team of advisers and partners in place to make the sale as successful as possible.