The New Year is traditionally a time when many of us take stock of our lives and make plans for the future. If you are thinking of selling your business in 2007, you need to consider how you are going to maximise the purchase price and attract the best buyers. Although this largely depends on the nature and history of the business, there are a number of steps you can take to make sure you get the best out of the sale.
Get the timing right
Allow enough time to plan ahead when selling your business. Establishing a timescale leading up to the sale enables you to cover everything that needs to be done, and means that your business will be sold in tip top condition, with increasing profits and good growth prospects. Factor in seasonal allowances - you want to maximise the value of your business by selling at the time of year when you have the most working capital.
Factor in seasonal allowances - you want to maximise the value of your business by selling at the time of year when you have the most working capital. An additional timing consideration is whether you want the sale to be based on historic or prospective earnings: by delaying a sale until perhaps two months before the end of a trading year, it may be possible to secure a sale price based on improved current year earnings compared to a lower price if the sale is based on historic earnings.
Remove any legal obstacles
Existing or threatened litigation, contractual disputes, outstanding legal, tax, banking or financial issues will all complicate a deal and are examples of the issues you need to address before selling your business. Also be clear on exactly what belongs to the business - make sure you own and have registered all patents, copyrights, trademarks and intellectual property rights.
It is usual practice to prepare the accounts of a privately-held business in a way that minimises earnings and profits for tax purposes. However, for valuation purposes you wish to do the opposite. Consider recasting financial statements from recent years to show what the business would have achieved if run like a public company, where earnings and profits are maximised. This may have tax implications, so seek advice from a tax specialist. If the business is valued on earnings, you could also consider disposing of loss-making assets that do not contribute to the earnings base of the company. However, if the business is asset-based then asset disposals at less than book value prior to sale may adversely affect value. If loss-making non-core businesses cannot be rendered profitable, consider selling them off or closing them down.
The best time to sell is once any large investments you have made have reaped their rewards in terms of profit and cash-flow benefits. If you cannot avoid incurring significant capital expenditure, you may not be selling at the right time. If you have to sell, at least make sure that the buyer is aware of any such expenditure.
Cut costs - where you can
Preparing a business for sale is the time to re-examine basic procedures and cut any unnecessary costs. You can also maximise working capital by reducing stock levels and controlling creditors, and make savings by reducing advertising for future business or not hiring new staff. However, beware of making short-term profit gains that will adversely affect long term prospects: buyers will see through this in the due diligence process, and if the sale falls through then you will be left to deal with the consequences.
Contracts, customers and suppliers
Buyers will want to be reassured that the business is not dependent on one or two key contracts. Make sure you have a broad base of customers and suppliers, and ensure that any contracts that are near to expiry are renegotiated prior to a sale. You may also be able secure more favourable supplier agreements in order to contribute to cost-cutting measures. Address any informal agreements and try to make them contractual, as buyers will want them in writing. Also be aware that major customers and suppliers will have an interest in who owns the business.
Your role in the business is central to its valuation. A business that is dependent on its owner is not worth anything to an outside buyer. Take steps to reduce this risk by ensuring that a strong management team is in place, and consider incentive schemes to retain the loyalty of key employees. Communicate with your staff about your reasons for a sale once you have taken the decision to proceed, and make sure that everyone is on board before you invite in potential purchasers, who will notice any conflict.
Seek professional advice
Selling your business will be arguably be the most important transaction of your life, so it is essential to seek advice from professionals who can help you to make the most out of the sale. Your accountant will help you prepare the business' accounts and take care of any financial recasting, and you will need a solicitor to advise on legal aspects such as drafting sales agreements. You will also need a tax expert who can handle both business and personal tax planning. Finally, a business broker or corporate finance adviser can take care of the whole sales process, from grooming the business for sale, to valuation, marketing, and negotiating with prospective buyers, leaving you free to concentrate on running the business. Although shopping around for advisers runs a greater risk of the news of the sale leaking out, it is essential to get the right team.
Plan for after the sale
Finally, when selling a business, it can be hard to see past the end of the deal. However, if you are going to receive a large amount of money for your company, then you need to plan what you will do with it beforehand. Seek the appropriate tax and investment advice so that you can enjoy the fruits of your hard work to the full once the sale is complete.
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