The exit strategy for moving to pastures new: Preparing your business for sale

5 min read

21 October 2016

There comes a time for most entrepreneurs to exit their business; whether to release funds for a new venture, retirement or some other reason. But to get the best price requires considerable preparation when declaring a business for sale.

So, you’ve been growing your business over a number of years, achieving countless successes along the way and now you feel it’s the right moment to move on. But when it’s time to prepare your business for sale, are you sure what’s required?

Here are the top tips to guide you when planning to put your company on the market.

Give time to prepare

As in most things, it pays to prepare exiting your business well in advance of your intended exit. You will need to at least have several years of good trading results to attract high bids when a have the business for sale.

Get the professionals in

Getting professional advice early on will help set you on the right course. There is a lot of due diligence work in selling a business. An accountant will be able to guide you on the requirements for financial information while a lawyer will advise on your contractual obligations.

Furthermore, an accountant/financial business advisor will be able to assist in identifying potential buyers and advise on what information they will be looking for with the business for sale.

Due diligence

An accountant will be able to advise and assist in putting together a full set of audited accounts that clearly shows a buyer your company’s performance as well as comply with legislation.

On the legal side, make sure contracts, whether customer contracts, supplier contracts and employment contracts are watertight. This means that they will need to be reviewed. If there are any ongoing legal disputes, it’s a good idea to aim to clear these up before putting up the business for sale.

Another important aspect is copyright and patents. If your product depends on legal protection from competition any buyer will make sure that they are effective. There is also the issue of warranties and guarantees. A buyer will want to know if they could be a liability if drawn up in a way that is unfair to the business due to circumstances beyond its control.

Read on the next page for the final four guidelines on how to prepare a business for sale, including ensuring the best possible purchase figure.

Clarify your negotiation position

Make sure you’re clear on what figure you’re aiming for and stick to it.

Make your business independent of you

It is essential that your business can operate well without you. This means recruiting and training staff so that they have the skill and expertise to continue to run and grow the business.

Time will need to be taken to bed-in new staff as well as introduce them to customers. It is also essential to plan for succession with the new CEO firmly in command before offering the business for sale.

Work hard to cut a good figure

In the long run-up to selling your business, you want to make the figures look good, which means cutting cost while boosting revenue. Look at ways you can cut costs of services and it is a good idea to regularly review IT and telecoms, utilities, reprographic and similar services.

Another is underutilised assets. Can they be sold off or earn the company revenue? For example, what about sub-letting underutilised floorspace? And with the opportunities of tech and the sharing economy, it is even possible to hire out your boardroom or other rooms and even equipment per hour.

Buyers also like to see increasing revenue figures. This means working hard to keep the company growing and resisting the temptation to slacken off because you’re selling.

Can you diversify your customer base?

Buyers of a business are making an investment and ideally they like to see a broad customer base and not over reliance on just few customers as this increases risk. It is advisable to try and spread your customer base, but this can be difficult for some types of business.

Rupert Cattell is the founder of OwnerSellers

Image: Shutterstock