Preparing Your Business For Sale

When it comes to selling a business, a small amount of time and effort preparing for sale can pay off handsomely when it comes to the final result achieved. Here, we discuss a few of the key areas to consider to maximise value before you start the sales process. Every business is different so for a more tailored and totally confidential discussion on an approach that will suit your circumstances, reach out to the LINK Enterprise team today.

Overall, you will want to prepare the operation, so it produces maximum profits whilst being structured to transition to new ownership with minimum impact on operations and profitability. Here’s a checklist of some of the important matters to focus on to prepare your business for divestment

Get the Records Straight

Some business owners are very diligent at keeping detailed, up-to-date accounts and records relating to contracts, customers, staff, leases, asset ownership etc. Some are not so diligent. Some accounting policies are tax-driven, resulting in conservative profit recognition. Whereas others are earnings driven, seeking to maximise profit. Changing your accountancy policies to conform to those of your industry may increase your business’s market value. Financial information must be current and accurate.

Therefore, the first step in preparing your business for exit is to get the books up to date and optimised to support a sales process so there is a clear picture of your operation, with supporting facts and projections. In addition to your existing accounts, ask your accountant to prepare a set of ‘normalised’ accounts to show maximum operating profits. This means adding back any expenses or purchases (sometimes personal) not directly related to your business’s operation. An explanation of any such corrections is usually required, and you should be prepared to discuss this openly. Preparing accounts for sale is a task for a specialist, talk to LINK Enterprise about this today.

Eliminate the Perks

You will need to review how unreported cash sales (if any) and any personal items that are paid for by the company, such as travel or entertainment, are managed. Unravelling personal expenditure from that of the business can make a big difference to the selling price. For example, a $20,000 trip paid for by the company is essentially $20,000 off the bottom line and could reduce the sale price achieved by four or five times that amount. Review leased and financed assets to see whether they are better converted into wholly owned assets. In an ideal world, business owners should plan for the sale of their business from day one and work through a process of v‘grooming’ it to achieve optimum value.

Are You Critical to the Business?

A business is more attractive if its success is not solely dependent on the owner’s input in terms of operational know-how, technical skill or personal relationships with clients or suppliers. If there are two working owners in the business, consider phasing out the role of one of them well before the sale and replace them with a paid employee. It is helpful to have a reliable management team to demonstrate that the business will continue to be successful once the owner has left. Most purchasers looking to buy a business expect the seller to continue working in the industry for a short transitional period following the sale. Others prefer a more extended period, which can be negotiated and included in the Sale and Purchase Agreement.

Should You Invest in Your Business Prior to Sale?

Optics are important! Can a buyer see themselves in your business? Are the workspaces tidy? does it have street appeal? When looking to buy a business, buyers will consider the quality of assets, and whether plant and machinery has been well maintained. Generally, the sensible advice is to continue investing in the business as if you were going to keep running it yourself. This enables future growth opportunities and opens up new doors for potential profit in the long term, both of which look good to potential acquirers. LINK Enterprise can provide advice on these and other aspects as part of a structured programme covering the grooming and marketing of the business to achieve the best possible value.

Coping with COVID

Make sure you can clearly explain the impact of COVID on your business, for better and for worse. Purchasers will want to understand what you’ve done to adapt your business model and how this has reduced risk. Being able to show monthly phased management results and what steps you’ve taken with customers and suppliers will go a long way to reassuring purchasers. If the financial results have worsened, you might expect to be offered an earn out if future maintainable earnings return to a normal level. Purchasers are still willing to pay a fair price if you can demonstrate how you’ve repositioned the business and what the growth prospects are.

Get Good Advice

LINK Enterprise specialise in high value business sales – that’s all we do. There are many consultants who will “talk” to you about exit planning. We go one big step further; we find the buyer and construct the deal. You get the outcome you want – not long reports and theory.

If selling your business is on the radar for 2022, get in touch for a confidential discussion on how to prepare and get the best possible price for your business.