There are many reasons that you, as a business owner, might decide to sell your business. The business might be failing, or you could be tired of running it. You might have a new opportunity you want to pursue or have other life changes that make it impossible for you to keep your business running successfully in the meantime.
Whatever your reasons, there are a number of factors involved in selling your business, that you need to be aware of so that you can sell your business for what it is worth and make the best return on your investment.
The reason that you want to sell will affect the way in which you sell. For example:
If your business is performing badly
A declining business will mean that you might have to take a lower price on your company. If you are in debt then selling the company could mean that you end up out of pocket after a sale. In this case it is worth thinking about whether it is possible for you to rejuvenate the business and rebuild a bit before you sell, in order to get a better price.
If your business is running at a sustained level, but with varied profits
You will want to base your sale price on the previous three to five years’ worth of profits, rather than just on where your company is now. You will have to be transparent with buyers about how the business is performing overall and will want to get all of your accounts in order so that you can prove your company’s viability.
In this case it is still important to put your all into the running of the company so that it does not stagnate while you focus on finding a buyer.
Preparing to sell your business
Even if you are ready to make a quick sale, chances are it will take some time to complete a sale. The average time for a small business to sell is around 6-8 months, depending on the deal you wish to secure and the industry that you are in. During this time it is possible that your business’s fortunes could change dramatically.
Before you even think about putting your business on the market you need to:
- Prepare full and comprehensive accounts for your last accounting period, and have full management accounts for every month after this
- Make sure that you have tied up loose ends such as legal issues, leases and contracts
- Settle any ongoing litigation and disputes with employees
- Reduce your personal expenses and bring your cash flow down to the bottom line
- Speak with professional advisers in order to put together the best possible deal
- Increase the responsibilities of your management and decrease owner responsibilities
Valuation
This can be a hard one for business owners, as you are likely to have given years of your life to the company and feel that it is worth everything that you have put into it. In this case you need to clear your mind of your own emotional bias towards the company and look at it objectively so that you are asking for a price that is better suited to what the company actually has to offer a prospective buyer.
Although it is important that you make a comprehensive pre-sale valuation of the company so that you know what you are marketing it for, don’t be too rigid on this. As the sales process goes on you will find out a lot more about the market that will help you to understand what your company is worth. You can look at what similar businesses are selling for, but again be prepared to look realistically at what your company has to offer.
Creating A Sales Profile
A simple, one-page sales profile offers potential buyers everything they need to know about the business without being too in-depth. All you need to include in this is the most basic information about your company, such as:
- What you do
- Where you do it
- Your reason for selling
- The company’s potential for future growth
- Differences between you and your competitors (your USP)
- Basic financial details (annual turnover, GP, EBITDA)
- Contact details
Negotiation
Once you have had your business up for sale for a little while and started receiving offers, you should have a much better idea of how your business is going to perform on the market. This allows you to finesse your negotiation process so that you can get the best possible price and make a decent return on your company.
Ask yourself:
- What is a good price or deal for your business? Are the prices being offered acceptable, or are you being lowballed by potential buyers? You can start putting together evidence of why you think this in order to formulate a counter-offer to make to any serious buyers.
- How many buyers do you really have? Try to work out who is serious and who wants to grab a bargain in order to sell it. Of the buyers that are left, you can start negotiating with them for a price that you are all happy with, or potentially start a bidding war.
- If you say no to a buyer, will someone else come up? This is a tough one because you have to be honest with yourself about the viability of your business on the current market. If you feel that you are not being offered a fair price, but there are also no other options and no potential buyers on the horizon, you might just have to take the hit and sell for less than you want. You can still negotiate with the buyer to create a deal that bridges the price gap, such as a cash payment.
Due Diligence
Once you have a buyer and are ready to make the sale, due diligence is the part where most business owners trip up or lose the sale. This is the area where the more hidden aspects of your business come to light, and the buyer can back out at any time if they don’t like what they see.
In order to maintain buyer confidence and ensure that the sale goes through, ensure complete transparency, but be prepared to offer justifications and possibilities to get over potential roadblocks.
Protect Yourself
You can download sale and purchase agreements online that will walk you through the sales process, but it is a good idea to bring a solicitor on board at this stage, if you haven’t already. They can make sure that you have crossed all your ‘t’s and dotted your ‘i’s so that the agreement is solid and both parties get what they want.
Want to find out more?
If you would like any help in selling your company, then we are here to help. Get in touch with An Accounting Gem Limited on 01473 744 700 or email us on contactus@aag-accountants.co.uk to find out more.
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