Business Sale Readiness Factor #3: Sale process preparation

Business Sale Readiness Factor #3: Sale process preparation

The motto “fail to prepare, prepare to fail” should be first and foremost in anyone’s mind when planning the sale of their business. There are lots of things that a business owner can do to improve the attractiveness of their business and maximise its sale value.

Just as importantly, there are also things that can be done to make sure the sale process itself is as smooth and efficient as possible. Based on my many years of experience of advising both business sellers and acquirers, I set out below some distinguishing points of businesses that tend to glide through a business sale process, compared with those that don’t:

The departing shareholders understand how much money they need from a sale

As a seller you want the very highest price… right?

In my experience, this isn’t always the case. Often, other non-financial factors come into play, like the ethos of the buyer, the structure of the deal and the longer-term protection of the employees and legacy being left behind.

With this in mind, what’s perhaps more important for the departing shareholders to understand is how much they need in order to fulfil their aspirations after the business sale. That’s where a financial planner will be able to guide you on the amount you need. And if there’s a gap between this amount and the value of your business, it may be best holding off a sale process until the value of the business has been sufficiently increased.

Understanding the tax implications of selling and being prepared accordingly

As a seller you want to pay the least amount of tax on the sale… right?

Well, yes, I can’t disagree this time. Not many clients complain that they don’t pay enough tax (although I do know one!). Business owners need to understand the amount of tax they will pay and work with their advisors to spot any opportunities to mitigate this tax liability leading into a business sale.

The key is to make sure you do this early. I’ve seen business sales getting close to completion only to be delayed by 12 months whilst some crucial tax planning is brought into account. Any such delays can be avoided by taking early tax advice and we always work closely with our specialist tax team to make sure this happens.

Using suitably experienced corporate lawyers to manage the sale

Treat your legal fees as an investment in your peace of mind, not a short-term cost. Buying and selling a business is a hugely complex and specialist area, so you’ll want a dedicated corporate solicitor, not one that dabbles in a number of areas of the law. Trust me on this. The fees might be slightly higher, but you should have a much better chance of securing a well-thought-through legal document, which will often save a lot of time and avoid expensive disagreements further down the line.

When agreeing a deal in principle with a buyer it’s important to establish whether they will be using an experienced corporate solicitor too. You’d think you might benefit from the buyer not doing so, but in my experience, it usually just means delays and your solicitor needing to undertake more of the work, which, in turn, increases your fees.

Being aware of similar businesses being sold in your marketplace in recent years

We have access to a number of specialist deal databases and can help highlight to our clients comparable deals. With that knowledge we can identify potential buyers for their business and the prices being paid.

Leading into a sale, it’s always helpful for business owners themselves to keep close to acquisitions and disposals in their market. It should help give them a feel for the general appetite for deals, price levels, the identity of likely buyers and whether they are likely to remain actively interested in buying more in the future.

Knowledge is power when it comes to selling your business.

Further assistance

The above key factor is taken from our free and insightful ‘Sale Readiness’ diagnostic tool which aims to give business owners a score on the nine key factors determining:

1. How attractive your business is for sale
2. Whether you will maximise the final business sale value, and
3. The efficiency and smoothness of your business sale process.

The online tool takes only five minutes to complete and your results will highlight the top three factors which are working well and the top three factors which require the most attention before you consider a business sale process. You’ll also be able to see how you compare to the global benchmark (average scores of all completed diagnostics) on each of the nine factors.

Of course, if it would be helpful, my team and I would be pleased to discuss your results and guide you on your next steps. In addition, each month I’ll be releasing a blog, just like this one, on each of the nine business sale readiness factors to help bring them to life.

So, if you’re interested in selling your business, why not complete the ‘Sale Readiness’ diagnostic tool, or get in touch with me directly, and start bringing your dreams to reality.

Next month’s blog: Business Sale Readiness Factor #9: Sales and marketing

James Lay