Selling your business: All the steps you need to prepare for sale success
Whether you’re planning to take a step back from your small business after building it up over decades or it’s simply time for a new venture, selling your business can be one of the most important decisions you make as a business owner.
But, with so much uncertainty around selling your business, it can sometimes feel quite overwhelming when you’re thinking of taking the plunge.
To help you avoid any sale mishaps — and make sure that you get the best deal possible — our handy guide can help introduce you to the world of selling your business and the steps you need to take to be as prepared as possible.
What does it mean to prepare your business for sale?
Preparing your business for sale simply means getting your company and all of its accompanying documentation in order.
Usually, it can take months — or even several years — of hard work and preparation to plan a business sale effectively. This is because you need to ensure that your business is ‘sale-ready’ to make it attractive to any potential buyers who might be interested in purchasing it.
The most successful exit strategies take a lot of time and planning to make sure that you secure the best valuation price possible.
Whether you make any profit on the sale will depend on several factors such as:
- The reason for the sale of the business
- The timing of the sale
- The way that the business is structured
- The strengths of the day-to-day and overall operations of the business
Is selling my business the right option?
Before you decide whether selling your business is the right option for you, you’ll have to give a lot of thought and consideration to your reasons for doing so. This can sometimes include uncomfortable conversations with potential buyers surrounding the reasons why, so you’ll have to make sure that they feel reassured with your motivation for selling.
It’s best to consider:
- What are your objectives for the business? — Does it need new investments in order to grow?
- As the owner of the business, what are your objectives? — Are you looking to retire as soon as possible and distance yourself from the business? Or would you rather have a slight ongoing involvement?
- Who else will be affected by the sale of the business? — You’ll have to consider how any other shareholders, managers, or employees will be affected. Also, take into account any suppliers or customers that are loyal to the business or rely on you.
How do I know if a sale is realistic?
Essentially, you can only sell your business if someone is prepared to pay for it. That’s why it’s important to make sure your business is as attractive as possible. If you can’t identify strong reasons why your business would make a good investment for someone else, it’s likely going to be difficult to find a buyer.
It’s important to ask yourself:
- Is the business healthy? — Sometimes, a business that is in financial difficulty can be hard to sell. To get the best price, make sure that your business is profitable. If not, potential buyers are likely to wait until you inevitably have to put down the price.
- Is the business organised? — A well-organised business with strong management can be extremely attractive to buyers. This usually makes the transitional period of handing over the business easier.
- Does the business have a good financial record? — Buyers are more likely to be drawn to businesses that have a record of successful growth and increasing profitability.
If you plan the sale of your business in advance, this gives you enough time to weed out any issues or problems within the company. Fixing any potential issues can drastically affect the value of your business and make it as attractive as possible to potential buyers.
How do I know when my business is ‘sale-ready’?
Selling your business at the right time can have a significant impact on the price offers that you’ll receive. However, knowing exactly when your business is ‘sale-ready’ can be a challenge.
Essentially, your business is ‘sale-ready’ when you feel confident enough that, if you were to step back, it could still run efficiently day-to-day.
Again, there are certain questions that you can ask yourself to make sure that your business is ‘sale-ready’:
Can the business operate without you? — If you know that the business cannot function without you, then you’re leaving any potential buyers in a sticky situation. Make sure that you have a credible management team who will be able to continue to drive the success of the business once you step down.
- Is the business profitable? Do you know its predicted profit trends? — For any business, the more profitable it is, the more likely it is to draw in buyers. Being able to illustrate a strong and growing profit pattern over a sustained period of time will increase the value of your business.
- Are current and potential risks under control? — Managing the risks of your business, such as the reliance on a certain supplier or particular customer, will reduce the risk profile in the eyes of your buyer.
- Is the business in debt? If so, is it under control? — Selling a business that has a lot of debt can have a negative impact on buyers and how they see the business.
From a legal perspective, make sure that important items and documents are up to date. These include anything from:
- Property leases
- Title deeds
- Employee contracts
- Customer and supplier agreements
- Share certificates
- Intellectual property rights
This will remove the burden of trying to tackle this process later on down the line.
How do I choose an advisor when selling my business?
An experienced advisor can have a huge impact on the success of your sale. They can be the difference between receiving a deal that your business deserves and it being sold for less than it’s worth.
You’ll need the help of:
Accountants and solicitors
First things first, you’ll need to find an accountant and solicitor. The accountant will help with the financial aspects of the sale — so things like preparing the accounts — and the solicitor will focus on any legal issues — like drafting up a sale agreement.
Although your accountant may be able to help you when it comes to tax, it's best to find a dedicated tax advisor to help handle your business and personal tax planning.
Brokers and finance specialists
Typically, most businesses will use a specialist broker or finance specialist from an early stage in the selling process. They can help with things like:
Negotiating a deal on your behalf
- Producing sales documents
- Finding and vetting potential buyers
For both a broker and a finance specialist, you’ll want to make sure that they have the necessary experience and a proven track record of sales success. Always check their credentials and any reviews of the company they’re coming from.
How do I prepare my business for sale?
A successful exit strategy can take a lot of planning to ensure that you find the right buyer for your business. To make sure that the process runs as smoothly as possible, you’ll have to prepare your business for sale.
1. Know your objectives
No matter whether the business’s profits are dwindling or you’re simply wanting to start a new venture, you need to keep the end goal in mind at every step.
If you have a set amount of money that you want the business to sell for, or you’re looking to sell by a certain deadline, these objectives can help to make the process more focused. You should be prepared, however, for the deal to take at least six to nine months at a minimum.
2. Have your business valued
Having your business valued can be one of the most important and crucial steps when selling. Essentially, a business valuation is an asking price for your business. It’ll be based on a wide range of factors including any physical assets the company may have, the projected profits as well as the reputation of your business in the industry.
Just like with any other type of valuation, this won’t mean that this is necessarily the price that your business will sell for. You’ll have to be prepared for a lot of haggling.
3. Get your accounts in order
Making sure that your accounts are organised and accurate will put potential buyers mind’s at ease. They’ll need to see a wide range of documentation which can include:
- Asset valuations
- Details of any liabilities or debts
- Historic turnover and profit figures
- Profit forecasts
- Simplified company reports [Text Wrapping Break]
Review any systems and processes that are already in place
If you’ve been running the day-to-day operations of your business for a long time, it can be easy to forget some of the systems and procedures as it’ll be like second nature to you. This may mean that some of the systems you’re using could be outdated.
To make the process easier, make sure that you use effective, streamlined, and modern invoicing and credit control methods so you can easily pass this on to whoever takes over the business.
4. Do your due diligence
Before presenting your business to the market, you need to make sure that all contracts are checked for uncertainties or anomalies. Things like staff contracts, supplier terms and conditions, legal contracts, and more all need to be reviewed for any outstanding issues or potential problems that could derail a sale.
What are the ways that I can sell my business?
There are a number of ways that you can sell your business. Each will depend on a number of facts such as the size, type, and sector of your business. Typically, most businesses are sold to another company of a bigger size that operates in the same field.
There are various options available to sell your business; full or particle sale, sale of assets, and immediate or phased payments.
Full or partial sale
First, you’ll have to decide whether you want to fully sell the business or still have a small stake in it. Some buyers prefer to keep previous owners in the loop with particular ownerships and continue their involvement in the business. If you choose to remain in the business, this may give the new potential buyer confidence that the business will succeed in the future — seeing as you’re not jumping ship.
Sale of assets
If you’re not looking to sell the business itself, then selling off some of its assets can be invaluable. Assets like intellectual property, professional equipment, or customer lists can be an attractive offer.
Immediate or phased payments
Once the details are sorted and it’s time to receive payment, you can either ask for it in full or in instalments. The buyer may prefer to pay in instalments instead of forking out for one large sum, but this can put you at risk.
Often known as an ‘earn out’, some buyers will make a series of payments based on the profits that the business makes once they’ve taken over — this may mean that you’re contracted to stay within the company for a period of time.
Preparing to sell your business
While the process of preparing to sell your business can seem overwhelming and be an emotional venture, it can be the initial first step in helping you take a step back from the company.
There are always risks when preparing to sell your business, but you can try to minimise these with a robust business insurance policy. Get in touch with the Bionic team to discuss your needs, or get more information on business insurance today.