As a business owner, selling your business is likely to be one of the most important things you will ever do. Therefore, it is imperative that you are ready for what will be, at times, a rocky road.
So, what are the key questions you will need to ask yourself to see if now is the right time to sell?
What are your reasons for wanting to sell?
Generally, people are ready to retire. This doesn’t necessarily mean you are at “retirement age”, it just means you are ready to do other things with your life and no longer want the ties and commitment running a business 7 days a week brings. We are definitely seeing a reduction in the age profile of business owners wanting to “retire”. It’s also fair to say that the pandemic has made many business owners evaluate their work/life balance and whilst this shouldn’t activate a knee jerk reaction, you may be thinking of selling in the next year or so.
Is now the right time?
In an ideal world, you will have made the decision to sell many months ago so that you have given yourself the best possible opportunity to get your “house in order”. In reality, this is not always possible as you may have received an unsolicited approach from a potential buyer that just may well be too good to turn down. You just never know when this is likely to happen so it is vital that you do everything you can in order to ready yourself for a potential sale and maximise the value you will ultimately receive.
Have you done everything to maximise value?
Maximising profit is an obvious statement, but this will ultimately lead to a higher sales value, as many businesses are sold on a multiple of adjusted profits, or “EBITDA”. However, there are a number of other things worth considering in order to maximise value, such as length of contracts with customers, high levels of recurring income, no undue reliance on one customer or supplier, the condition of your assets (including properties), and evidence that your historical financial results are stable or even better, on a growth trajectory. Regular management accounts, either monthly or quarterly, are a great way to ensure you are on top of your numbers and the buyer will take comfort from them if they are maintained in a way that when it comes to your accountant preparing the annual accounts, very few adjustments are required.
Are you DD ready?
A key part of the process for a buyer is Due Diligence. This could, and often does, mean that you are going to be bombarded with numerous questions about your business, including financial (including taxation), commercial, legal, and operational questionnaires. It is important to be on the front foot when the questionnaires arrive as this will give confidence to the buyer that you are on top of everything. A poor performance at the due diligence stage may result in the buyer wanting to negotiate a price reduction, so be ready!
Are you Tax ready?
As mentioned above, the due diligence process will pay particular attention to your historical taxation records – have all tax returns been filed on time, have all liabilities been settled at the appropriate times, are there any arrears, have there been any tax enquiries and if so, what was the outcome, have you invested in any “tax schemes” etc. Any negative news here will undoubtedly raise a red flag to the buyer and their advisors. The important message here is “be ready”.
Who are the key buyers?
Part of the role performed by your M&A advisor will be to identify who the key buyers are, via different research resources. However, your input into this process will be vital as no adviser will truly know your business and market better than you do. Therefore, working in collaboration with your advisor is key to finding the right buyer.
Have you considered what help you may need?
You won’t be able to navigate the entire sale process on your own – you will need help throughout. A good internal team will provide help in making sure you have everything in order but understandably you may not want to share the fact that you are considering selling. This kind of news is normally only shared with your trusted lieutenants so if you don’t have this available, you may want to seek external help from an M&A advisor and your accountant. When the sale process is in full swing and a suitable buyer is found, you will need to engage a corporate lawyer to help negotiate the Sale & Purchase Agreement (SPA). I cannot emphasise how important it is that you appoint a lawyer with the right credentials.
What not to do
Do not make any hasty decisions, you will pay for these in the long run. Also, do not forget that you have a day job. All too often business owners become distracted by the fact that they are selling and then your business can suffer, which can ultimately lead to a reduction in value.
What to do
Be ready! You should not consider selling your business until the timing is right. Don’t lose sight of the fact that selling your business is likely to be a once-in-a-lifetime event and you need to get it right. Appoint the right professional advisors and they will help you navigate through to a successful completion.
Simon Hopkin
Director of M&A
