16 August 2016
Selling a business is up there with births, deaths, marriages, divorces and house moving as being hugely stressful. This situation is not helped by the process usually being devilishly complex and potentially confrontational.
What should you consider when selling your business?
There are many issues to consider when selling a business. Firstly, what are you selling? Are you looking to sell the whole of your business or a smaller part to ‘bank’ some value and raise additional funds for expansion? It is also important to ask yourself why you are looking to sell and, particularly, what you will do once the sale is complete.
The climate for business sales had changed for the better over the past 12 months, due to an apparent upturn in the UK economy and a more optimistic outlook; whereas business owners were more likely to bide their time in exiting their businesses during the recession, it seemed that this had changed. The impact of Brexit on the economy and the appetite for business sales has not yet been fully appreciated, but may further impact the market on a negative feeling.
Previously the reduced options for buyers to raise finance together with a perception of a reduced value for the business owner seemed to leave both sides wishing to keep their powder dry in respect of considering business exits.
What can you do to increase the value of your business?
Regardless of the business climate, there are a number of things entrepreneurs can do to help increase the value of their business while preparing it for sale. The basic rule is to ‘get the house in order’ beforehand. For example, ensure that any minority interests are willing to sell and what (if any) warranties and indemnities they are willing to give.
You must also ensure that any third party consents or licences to the change are readily obtainable. Checking that all the financial affairs – taxation, reporting routines and controls, Companies House filings and so on – are fit for purpose is also important.
Property issues must also be taken care of, with good title to intellectual property and freehold in place, in addition to reviews of leases for their impact on sale. You could also consider a valuation for any freehold properties held.
Ensuring a strong management team is in situ will also assist with the stability of a business moving forwards.
One of the most important things, however, is to ensure that sufficient planning has taken place enabling a smooth transaction. From a past experience of mine, I assisted the shareholders in a company consider a future sale. They chose to consider the post transaction effect of every operational and financial decision of note, even down to the decision to buy or lease their photocopier! They were ready for all eventualities and were able to make even the smallest of decisions confident with the knowledge of how it would affect the business. Whilst this level of detail isn’t appropriate for everyone, considering the impact of your decisions is a good way to plan for your future development.
Finally, businesses must not let a sale distract them as it can impact profitability. When dealing with a business sale, it is necessary to take the emotion out of the decision as far as possible, which is why we recommend you look to experienced and trusted advisers to help achieve the best-value sale for the business.
If you would like help preparing your business for sale, our corporate finance specialists can help you.