The 3 Ps: Prepare, prepare, prepare
I had a conversation with an acquirer the other day who has bought a number of companies through BCMS. He said to me that the reason he is particularly keen to buy companies we take to market is because he feels confident that the businesses have been well prepared. And that means there won’t be any nasty, time-wasting surprises when it comes to negotiations.
What is it that BCMS does to help our clients prepare? I had a quick chat with Jackie Kenaghan, who heads up our team of six highly-qualified Business Analysts. The function of Jackie’s team is, quite literally, to make sure all the numbers add up. When a business is well prepared, and all financial reporting is accurate and credible, it can greatly increase the momentum of the deal-making process and pre-empt any questions a potential acquirer may have.
I asked Jackie if she could offer some tips and advice for business owners. Here are a few of her suggestions:
“We always urge our clients to be 100% transparent from day one. Everything comes out of the closet during due-diligence, and we do not want any surprises that may put an acquirer off.”
2) Be sure you want to sell!
“My team work hard to put together future business plans to present to future acquirers. These plans not only forecast future business performance, but also make suggestions that can enable the business to drive efficiencies and push up profit. On occasion, I have had business owners start to implement this while going through the business process and, at this point, have fallen back in love with their business. This causes a halt to the sales process, which is not a problem for us, but it is best if the business owner is sure of their sales motives up front.”
3) Check out your Employee Benefit Trust
“EBTs are currently receiving particular attention from HMRC; just think of the example of Glasgow Rangers football club. There can often be tax issues with these schemes. In our experience, the majority of EBTs, and the underlying rationale for setting them up, have been viewed as ‘questionable’ by HMRC. That means EBTs can be seen as ‘toxic’ by buyers, due to the possibility of tax liabilities arising in the future under new ownership. Therefore, well in advance of putting a company up for sale, it would be prudent to refer these cases back to Tax Advisors/Accountants with a view to removing any perceived ‘toxicity’ from the company.”
4) Sort out your shareholdings
“I recently worked with a company where the business owner had decided to sell one of his companies. It was a group of businesses under a holding company. If the shareholding is in the holding company and the business owner divests one of his businesses, this means that the consideration of the sales proceeds will go to the holding company - and there is no entrepreneurs’ tax relief available for that. Obviously this isn’t difficult to adjust, but again it needs to be done prior to taking the business to market. We would advise our clients to work with their accountants to get this in order.”
5) Be realistic in the plan you put forward
“There can be a tendency to want to put together a very optimistic business plan – we call it a “hockey stick” forecast showing dynamic growth projections. We always urge caution here and look to advise our clients accordingly as this could encourage a potential acquirer to structure the deal in a way that rewards our customer on the future performance of the business, and not its current performance. This could lead to deferred payments instead of getting most of your money upfront.”
6) Develop a management structure
“Acquirers love businesses with systems and processes, and management teams with clear lines of report. This demonstrates that the business is independent and can function well, based on its processes and not just on one person.”
Every business is different, and so are acquirers’ motives. Remember the three Ps: preparation is key, even if you are not thinking of selling your company now. Taking action today may make your business more attractive when the time is right.