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How to get the best price when selling your business

19th Feb 12 7:15 pm

Richard Heap explains how to get the highest valuation for your business, with tips on “grooming” ahead of selling and a run-down of the sales process

Selling your business is very much like selling your house. If you spend some time doing your house up then you are limiting the purchaser’s negotiating position. A bit of paint here and there, maybe some remedial work on dampness and so on, will all pay off when it comes to selling your property.

It’s the same when it comes to selling your business. This pre-sale process is called “grooming”, and it can significantly enhance the sale price.

Grooming your business for sale

The grooming process is intended to present your business in the best possible light. The areas grooming should cover include:

Quality of customers and earnings– try to secure future earnings and margins by extending customer and supplier contracts. Your trading growth and profitability should show a consistent trend, demonstrating year-on-year growth.

Asset performance – realise underutilised or unnecessary fixed assets and obsolete stock. Anything that is not used to maintain the earnings of the business should be sold or distributed. Prioritise the collection of your older debts. If necessary, write them off to clean up the balance sheet.

The commitment of the management team – a business is often only as strong as those managing and working for it. Offering key managers incentives and bonus schemes can ensure the long-term commitment of your staff to the business.

Appearance – tidy and clean the business premises and enforce a clear desk policy, to create the right first impression for any visitor.

You might even consider buying another business first, as a bolt-on. If the synergy is there, it should add significant value to your business in a relatively short time, leading to the combined entity being highly marketable.

Selling a business, in most cases, is a once in a lifetime experience, and you only have one opportunity to get it right. I recommend appointing an adviser who knows the process and who can advise on how to avoid the pitfalls. They should also ensure your interests are protected throughout the process.

Selling your business: the process in a nutshell

  1. Establish a value for the business and prepare a detailed Information Memorandum
  2. Identify a list of qualified potential buyers
  3. Market your business to the potential buyers
  4. A stage of negotiation follows, during which you will receive offers from interested buyers
  5. The buyers will then conduct due diligence
  6. You receive and negotiate the sale and purchase agreement from the buyer and then structure and complete the documentation for the sale
  7. Both parties sign the sale and purchase agreement
  8. Once the conditions of the sale have been satisfied, the sale is closed and the business is sold

The average business sale takes from three to six months, but the length of time varies between industry sectors and stages in the economic cycle.

Are people still buying businesses?

Despite concerns over the economy, business disposals are still taking place in the UK. The reasons for this include: the availability of Entrepreneurs’ Relief, leaving gains potentially taxable at only 10%; retirement; and a change of either focus, or lifestyle, by the owners.

Quick tips on selling your business

  • Get the timing right
  • Be realistic about the value of your business
  • Groom your business to be attractive to buyers
  • Consider the alternative exit options – be open minded
  • Prepare a good sales memorandum
  • Identify interested parties
  • Keep the business operating at the same level, or higher, than it has done historically, until the deal is done
  • Control the deal and negotiate sensibly
  • Remember, you always have a choice not to sell!

Richard Heap is a Technology & Media partner at Kingston Smith LLP

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