Business Preparation
You should approach the sale of your business with the same due care, attention, and planning which you employed when you set it up, established it and grew it.
Sell Your Business Today:
How To Prepare Your Business For Sale
You should approach the sale of your business with the same due care, attention, and planning which you employed when you set it up, established it and grew it. Selling your business is a mixture of the business and the personal – this is a financial transaction which will fundamentally alter your personal life and professional responsibilities for years to come.
You will, almost in all cases, be subject to restrictive covenants meaning that you won’t be able to trade in the sector you built a business in for a significant period of time – prepare for up to 10 years.
You need to be clear on what comes after, how much it’s going to cost, and whether the money you can realistically expect to receive from the sale of your company will be enough to pay for the next stage of your life. Therefore, your first step must be to get a professional valuation of your business before anything else.
Get A Professional Valuation
If you want to sell your business and the M&A advisor giving you his or her valuation is of the belief that the money you receive from the process will not be enough so that you never to have to work again, you need to be clear about what you’ll do with your life and how you’ll meet your ongoing financial responsibilities post-sale. Ideally, you’ll need to start building what will become your primary source of income now as a second income for while you still own the company you intend to sell.
If you want to sell your business and your valuer believes that the amount of money you receive for it means that you’ll never have to work again, you need to know what you want to do with your life when you’re no longer the owner of the company. 40-60 hours a week is a lot of time to fill and, by their very nature, most entrepreneurs want to be active and involved in something. Now you know what you’re likely to receive in payment and whether now is the right time for you to sell, you need to get your business ready to present to the market.
The acquirer is also driven by three further motivations
If you decide that now is the right time to go to market, you should inform your accountant and your solicitor of your intentions so that you can form your own team of professional advisors – you’ll need them to battle on your behalf with what’s to come.
Following your selection of an M&A advisor, they will advise you to start getting your company documentation in order prior to marketing to business to prospective buyers. While you’re doing that, they begin the preparation of the marketing materials about your business including the initial introduction/teaser advertisements and the significantly important information memorandum.
In previous decades, the solicitors and accountants representing the seller of business would prepare the documentation needed for a “data room”. This was an access-controlled room which contained all the information likely to be required by the solicitors and accountants representing the purchaser. Fast forward to today and most “data rooms” are now virtually and only accessible via a multi-factor authentication system.
In order to prepare yourself for the due diligence process, it’s better to make sure that all of your paperwork and documentation is in order and up to date and that you continue to update it on a weekly or monthly basis.
Transparency and quickness of response during the due diligence process are essential. If a feeling develops in the acquirer or their professional representatives that obtaining information is difficult from you for whatever reason, the likelihood of a deal on which you have shaken hands falling through greatly increases.
Prepare Your Business Now
How to go about preparing your business
When preparing your business for sale there are many factors you must take into account to make sure the process is as efficient and streamlined as possible. See below for things you must take into account:
While the weekly or monthly updating of your data room documentation will require you to put in extra time at work, never lose sight that you must make sure that your business continues to be well-run, efficient, and profitable.
Any dip in sales, profitability, or efficiency as a result of your being distracted by the process will often lead to the acquirer reducing their offer price.
You will be asked for regular financial updates and management accounts during the entire process and presenting weaker figures to your acquirer will be noticed.
We covered transparency earlier in this article and absolute transparency greatly benefits sellers even if there are some parts of your business your instinct tells you that you don’t want a prospective purchaser to see.
Your acquirer will be interested in your business for many different reasons and, in our presentation of your company to potential acquirers, they will want to see all of the parts which add value – its customer database, its profit margin, the staff you employ (including senior management), and more.
However, please remember that your acquirer wants to purchase your business because they ultimately believe that they can run it better than you can. They believe that they can make more profit from it, that they can sell your products and services to more customers, and that they can mesh your company into their current corporate structure for further savings.
No business is perfect – there is always something sub-optimal lurking in the background with every company. Never let perfect be the enemy of great when choosing to take your company to market.
Speak with your transfer agent about the issues you’re concerned about honestly because he or she will be able to show you how some of these elements will appear to the acquirer as an opportunity to add extra value under their ownership.
Businesses which do not rely on their owners and shareholders to run profitably are highly prized by acquirers because, although they cost more, they’re more stable and they require less oversight by the acquirer and their management team.
In many cases, the acquirer of your business will have substantial other corporate interests from which they will not want to be distracted.
As progress towards a deal develops, you will need to let at least your senior management know so that they can begin to build relationships with the acquirer and their management team. The involvement of your senior management team will also likely give the acquirer additional confidence in buying your company.
While the presence in your business of sub-par factors will not prevent a sale (and may even enhance the chances of a sale in some circumstances), you should still always aim to improve your operational and financial efficiency as the business goes up for sale right through to the day of completion.
In the way that, as stated above, no business is ever perfect, there are occasions when a business is too far away from being “great” to make acquisition a sensible choice for purchase. If this is a danger for your business, work hard to put as many issues right as possible particularly before taking it to market.
Following your transfer agent’s marketing of your business, the finding of a buyer, and the agreement of a sale price, their involvement in the process does not stop. When the sale price is agreed, a Heads of Terms will be drawn up between you and the seller providing you both with a roadmap on how to get from the handshake right through to the sale and purchase agreement governing the takeover on the day of completion.
A deal is not a deal until the money is in the bank. There are plenty of opportunities, particularly during due diligence and the agreement of completion accounts, for the things to go wrong. Your business transfer agent is experienced in dealing with these types of disputes and impasses so make sure that you keep them up to date through the entire process.
Get Your Business Ready With IBA Corporate
Are you ready to start the process? We’d really appreciate the opportunity to speak with you about the sale of your company and being part of the process.
Please get in touch with us to find out more.
