How To Prepare To Sell Your Company

by Richard Baker

Here is our advice on some of the things which should be done to prepare a business for sale. Being prepared is the key to maximizing the value of any business as well as ensuring that the sale goes as smoothly as possible.

When planning to sell a business, it is important to remember that selling a business can take up to 12 months and may involve on-going commitment during a transition period.

1. Value your business

Realism is key - there is a need to understand the market value for your company and use this information as gauge offers within the process itself. Any company valuation must be objective, related to your industry and from an independent source.

A valuation will give you a base-line for gauging buyer offers and will give you an idea of what you can expect to net from the sale. It will also tell you your business’s market position, financial situation, strengths and weaknesses.

Valuations can be obtained from an accountant or a recognised business broker. It is important to make sure the company performing a valuation has access to your most recent management accounts and financial forecasts. Most importantly, they need to understand current industry sentiment and have good proxies for valuing your business - experience in selling firms of your type is obviously helpful as well.

2. Accounts

Potential buyers will generally require three years of historic accounts. The better prepared and more professional your accounts, the better the impression you’ll make. Solid accounts also make the buyer’s due diligence more straightforward.

3. The bottom line

Many small and medium sized businesses claim a variety of non-operational expenses. Understand what these expenses are and have supporting documentation to justify their exclusion.

In addition, there may be infrequent expenses (often called “one-offs”) that the business has incurred during the past three years that should be excluded in a buyer’s analysis of recurring cash flow.

4. Financials

Use a financial advisor to understand both the personal and corporate tax situation. This knowledge of your tax situation will influence the timing and also often transaction structure.

5. Paperwork

Review your incorporation papers, permits, licensing agreements, employment contracts, leases, customer and vendor contracts. Make sure they are readily available, current and in order.

6. Succession planning

Buyer support post sale must be considered. A succession plan must be in place before the business is advertised or potential buyers are approached. An area for particular attention is to show the potential buyer how the daily activities of the sellers will be accommodated.

7. Motivation for sale

A potential buyer will want to understand why the business is being sold. Be prepared to justify the sale and make sure the reasons you provide are genuine.

8. Supporting advisory team

Consider hiring an adviser, a business broker will be able to advise you before and during the selling process. We recommend that you contact business brokers, legal representatives and accountants who are proficient in mergers and acquisitions at least six months before you wish to market the business.

Most importantly concentrate on the business’ core activity and do not become caught-up with the selling process. If your business does not perform as well it will give the buyer every reason to lower the price. A good advisory team will understand your need to focus on running the business and will allow you to do this.

About the Author:
Mr Baker is a Founder at Beanstalk Management with over a decade of experience advising businesses. To learn more about preparing to sell your business review the Business Brokers section on his site.
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June 11, 2009 | Filed Under Banking

 

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