What do I need to prepare my business for sale?
Effective preparation is critical in ensuring your business is primed for the challenging sale process, and that a deal completes on the terms agreed, with minimal disruption. There are a number of things to consider when preparing your business for sale, however, the three topics highlighted below are key to getting you started.
Ensure you have accurate and comprehensive financial records
It’s important that you maintain adequate and accurate records to evidence the financial performance of the business as presented in the Information Memorandum (IM – your business sale prospectus) and any financial workbooks supplied, upon which a buyer will base any offer they may make. Any inconsistencies or inaccuracies could impact the final price paid and/or the deal structure.
By way of example, some of the information your buyer might request will include management accounts, and reconciliations to statutory accounts, tax information, sales pipeline information to support forecasts, breakdown of revenue by customers, product/service and margins, amongst many others.
Your buyer, at the appropriate time, will want to carry out their Due Diligence (DD) once offer terms are agreed, to assess the accuracy of the historical and future financial and commercial information of your business. The purpose of the DD exercise is to reduce any financial or commercial risk within the acquired business once change of ownership is completed.
Identify value drivers and key talent required to drive business growth and continuity
Your value drivers are the ‘how’ and ’what’ that set your business apart from competition, as well as why your clients have remained loyal to you over the years. Your key talent will include your senior management team, who should be seen as capable of driving future business growth with minimal dependence on you. This creates a sense of security in terms of employee continuity, and therefore value, in the mind of your buyer.
De-risk your business
Your buyer wants to buy a business which brings with it as little risk as possible. This justifies time spent in de-risking your business, both from a financial and management perspective. This could mean diluting the revenue contribution from one or two of your biggest customers, particularly if they each make up at least 20%+ of revenue. It could include making sure that the key commercial relationships with customers and suppliers are held by members of your staff, rather than by you yourself as owner-manager. These two changes can help demonstrate the sustainability of your business post sale, and minimises financial and commercial risk to the buyer, which in turn increases the value of your business.
The earlier you start preparing your business for a sale process, the better. There will typically be plenty of areas where value can be enhanced, risks to mitigate and strategic decisions to make with an eye on securing the ultimate prize
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