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How to prepare for a business sale

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Thousands of SMEs will change hands this year, as large corporate acquirers continue their spree of buying up HK businesses. Whether you’re planning to sell now or not, getting your business into sellable shape could be worth millions when the time comes.

What would make you sell your business? Among SME owners, retirement and lifestyle change are the two most common reasons, but a growing number of them will be forced to sell due to personal circumstances such as divorce, ill-health or simply by changing market forces.

But the key to the sale of a business is in the preparation, and even if you have no intention of selling now, there are a few simple tasks to ensure that you don’t inadvertently leave a substantial amount of cash at the negotiating table.

Update your achievements

Does your website fully explain what you do and how well you do it? Many business owners feel uncomfortable telling everyone how great they are, but you don’t have to be the worldwide number one to be attractive to a corporate acquirer.

Repeat buyers of SMEs get dozens of pitches every day. If you can demonstrate that you have lots of happy customers, a skilled workforce, and a good reputation, you have more to sell. All this builds into in vital component of building the value.

Collect new customer testimonials and update employee accreditations/qualifications, and get proof of your main appeal to customers – such as reliability, competitive pricing, or speed of service.

Understand your customers

A surprising number of small businesses don’t analyse sales data regularly or profile their customers. Your business may serve a select clientele of big industry names, or serve thousands of consumers around the world.  Develop a few simple metrics on average customer spend, top selling product categories, more profitable product lines, and range of industries served helps you demonstrate value in your customer base.

Revisit your paperwork

Even though it can take weeks or months for an interested buyer to make an offer on a business, once a deal progresses, lawyers can appear out of nowhere to go through seemingly every document you’ve got.

In short, your accounts, contracts, tax arrangements, certifications will come under scrutiny, so expect to be challenged and be confident on your numbers. The demands of this process can seem intrusive and/or pedantic, but is necessary to give any buyer comfort. Good information systems are the order of the day here, so spend a bit of time organising your data and documents.

High levels of debt in your business will be a concern for a buyer, so take steps to address borrowings and other financial commitments.

Simplify your ownership

Handing out equity options may sound like a great idea for a start-up to motivate its founding staff, but can become a nightmare as you try to agree sale price and terms. A business with 30-plus shareholders controlling a significant stake can and has become a major stumbling block when selling SMEs.

Either buy them out, or consolidate your shareholder structure to adjust voting rights in your favour.

Look after your uniqueness

Is your business name trademarked? Do you have any patents, copyrights, blueprints, exclusive contracts? Not having this in place often amounts to leaving money on the table. Conversely, if all this is nailed down, you will add significant value to your business just by filling in some paperwork.

Revisit your trademark jurisdictions, check any patent expiry dates, and re-read any exclusive supplier agreements to protect your innovations.

Sort out a handover

Make yourself dispensable by reducing dependency on you. Delegate more responsibilities to your management team – it will give you the best chance of a clean break after completion, if that’s what you’re seeking. Think like the buyer, who can and will take the reins from day one.

Large groups often prefer autonomous business divisions these days, and they usually prefer to have someone ‘on the inside’ to work alongside a director from their side to integrate the business.   

CHECKLIST FOR A SMOOTH SALE

  • Update website to make sure it reflects the whole business
  • Analyse sales patterns to identify your most valuable customers
  • Get your accounts in order, and check your contracts and tax arrangements
  • Trademark your brand and patent any innovations
  • Train up middle managers to take on more responsibility
  • Simplify shareholdings and structures to ensure a smooth sale

 

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Posted Sep 2016
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