Selling your business? Get your house in order for maximum value
Over 200,000 entrepreneurs started a business in 2013*, investing time and money to build their business to a successful level. Yet, when it comes to planning an exit strategy, Scottish Pacific believes many owners aren’t making the necessary provisions to ensure a successful, profitable sale.
In order to help owner-managers avoid some of the pitfalls associated with selling a business and ensure that they get it right first time, we provide the following steps.
1) Get a game plan – planning the sale of your business at least 18 months in advance will help maximise the value drawn from the sale.
2) Set goals – be very clear on your reason for selling and write down each objective. These could include: setting a target price and date of sale, securing the jobs of your employees, minimising personal tax liabilities and ensuring the business has been correctly valued.
3) Seek guidance – choose advisors carefully, ideally those with expertise in selling businesses. Optimum support can be provided from specialists such as corporate finance advisers, taxation experts and corporate lawyers.
4) Prime for success – ensure key elements of the business are in order, to show it in the best possible light, including: having assets in good condition, making sure IT/Information systems are running smoothly and formalising verbal agreements with customers and suppliers.
5) Get your finances straight – exercise tight credit management and stock control to improve your working capital. Confirm provisions for bad debt are realistic and irregularities are accounted for. Coincide the sale with a newly completed set of audited accounts - this will help reduce uncertainty of profit for potential buyers. Cash flows will be closely reviewed, so ensure processes are tightened up and any external financing is appropriate. Debtor Finance can be a suitable solution in the medium term to ensure working capital is as strong as possible.
6) Craft the Memorandum – the Sales Memorandum, a marketing document sent initially to potential buyers, should reveal hard facts and portray the business as attractive, illustrating its potential.
7) Target prospective buyers – anonymously approach around 30 potential buyers to gauge interest. Ensure your adviser has drawn up a confidentiality agreement, detailing all the hard facts relating to the terms of the sale, for interested buyers to sign.
8) Size up the offers – questions to be asking at this stage include: what your responsibilities and liabilities will be? How will the purchase be financed? Length of time for completion of sale? How will the business be run in the future?
9) Source the best deal – carefully play off prospects against each other to promote higher bids. Be prepared to negotiate.
10) Formalise the offer – agree Heads of Terms with the buyer. This will usually be subject to further due diligence.