Anatomy of a Deal: Preparing your business for sale

David Crump

Preparing for sale’ is the first in The Business Desk’s new ‘Anatomy of a Deal’ series, where industry leaders share their expert advice on each stage of the deal process. Over the next few months, we’ll be sharing articles and roundtable reports to help you navigate a business sale from preparation to exit.

A sale of a business is often a once in a lifetime opportunity, so it is vital that the deal is right first time because there are no second chances.

Selling a business is a complicated process that should be underpinned by a strategic exit plan. If you want to sell for the highest price possible, while also ensuring a good future for your company, time and preparation are essential – it is never too early to prepare for exit, even if selling your business isn’t in your immediate plans.

A business owner must ensure that their business is in prime condition to secure the most lucrative sale before putting it on the market. If a potential obstacle or issue is identified early on and can be dealt with prior to approaching a purchaser, then the sale process will run smoother and a better value will probably be obtained.

David Crump, Corporate Finance Director at PKF Smith Cooper, shares his expert advice on examples of matters to consider in preparing for a sale.

Set your objectives for the sale. Whether you need the sale to secure a set amount of money or you have a personal deadline for exiting the business, it’s important to have your end objectives in mind at every stage of the deal process and to communicate them with your deal advisors.

Identify your business’ key attractive features. Which aspects of your business are most likely to be attractive to a prospective buyer? For example, contracts, brand name, advanced technology, know-how etc. Work can be done to enhance these features and minimise the less attractive aspects to maximise the value of your business.

Have a strong management team at the helm. A business that is still dependent on its owner is less valuable than one where operational control has been transferred to a successful management team. Your management team has the potential to make or break a sale, so make sure you have the right individuals in position before putting your business on the market.

Maximise profit and cash flow. In the lead up to a sale, it becomes increasingly important to maximise profit and cash flow. Can significant capital expenditure/investment that isn’t going to yield proportionate profitability be curtailed? Are there unnecessary costs that can be terminated?

Secure any outstanding contracts. Make sure valuable contracts with customers and suppliers have been secured and formalised before putting your business on the market. Long-term contracts are especially important for demonstrating financial consistency and stability in future turnover and profit.

Review accounting policies and systems. Have you reviewed your policies and systems against standard practice? An early review could reveal opportunities to implement more flattering policies.

Streamline your balance sheet. Assets necessary to the business should be included, assets that are not used in the business can be sold or extracted (note that tax implications should be considered carefully).

Risk-assess to prevent future problems. Consider possible issues that could arise during a business sale (for example, disgruntled ex-employees, litigation, environmental risks etc.) at an early stage, so there is ample time to rectify them.

Conduct a tax review. An early tax review is highly recommended to assess the potential tax impact of problems, asset reorganisation, sale structure etc.

Seek professional support. Involving an experienced corporate finance advisor at an early stage is extremely advantageous, and by having regular contact, appropriate solutions can be implemented for any matters identified. Taking account of microeconomic and macroeconomic factors, they will work alongside you to obtain the best deal for both you and your business.

Due to the complexity of business transactions, it typically takes a minimum of six months from the start of a deal to its completion. However, the preparation stage should begin long before the sale process to allow time for changes to be made and for those changes to have a positive impact on your business’ saleability.

The specialist Corporate Finance team at PKF Smith Cooper have significant experience in supporting business owners through the entire deal process, from preparation for sale to successful conclusion. Get in touch today to arrange an initial discussion about your business.