The festive break and Christmas shut down is often a period when business owners have time to reflect on the future of their business and their own personal objectives- these reflections may lead to thinking about retirement and planning for the ultimate sale of the business.
If a sale may be in your future plans it's not as simple as putting up a for-sale sign and inviting bids. There are lots of things you need consider, and many steps to prepare. Making early decisions and planning for a sale will help you achieve the highest possible valuation for your business.
Below are 10 tips to help plan:
1 Start preparing early
The maintainable earnings in the financial years immediately preceding sale need to be as high as possible. Focus on achieving operational efficiencies, cost reductions and other ways of enhancing value.
2. SWOT analysis
Put yourself in a buyer’s shoes what are the strengths, weaknesses, opportunities and threats of the business.
3. Make yourself redundant
Ensure that there is a suitable management structure with the right individuals in the key roles. It is vital the business can function without you.
4. Accounting systems and robust financial controls
Reliable financial statements and accurate, timely reporting are attractive features that often influence a buyer's decision.
5. Reduce customer concentration
Many buyers look for a business which has a broad customer base with little customer concentration.
6. Growth and a supportable forecast
A key element to buyers is the future earnings and cash flow –being able to show future growth backed by a robust and detailed forecast gives confidence.
7. Review contracts
Review any major supply or sale contracts. Any contracts about to end should be renewed or extended. All key employees should have up to date employment contracts in place.
8. Identify any family issues
Identify and address any family issues - restructure any “family expenses”, clean up any excluded assets
9. Understand your businesses working capital needs
Understand the elements of your working capital and what the business actually needs to run on. Working capital should be reduced to the minimum level required to run the business. If the business is sold with excess working capital you are in effect gifting any excess to the buyer.
10. Seek professional advice
Taking early advice from an experienced advisor can provide you with sizable savings and add value.
By Alison Watts, Corporate Finance Director.