Guest post by Mark Nicholls, Managing Director of Tectona Partnership
If you have a view that at some point you are going to sell your business, and you’d like it to fetch a healthy sum, I recommend an earlier article entitled 7 steps to making your business more valuable.
Once all of the preparation is in place, and you’ve arrived at that pivotal moment, it’s time to embark on a further 7 steps to a successful sale. Be prepared to be patient, as business sales cannot happen in a matter of months, a steady approach is best.
Let’s get started:
1. Work out who you are going to sell to
Have you considered who you are likely to sell your business to? Will it be to your management team (known as an MBO, or Management Buy Out), or are you planning a trade sale? There are alternative mechanisms available where others invest in your business, for example, VC (venture capital) or PE (private equity). It’s good to be clear about where your potential buyers are, early on, if at all possible.
2. Continue to add value
It’s crucial to continue the good work you have already completed to prepare your business for sale, and to build on that foundation.
Check that your Intellectual Property – or “IP” (patents, trademarks etc.) are robustly protected – without this (in extreme cases) you may find that you have no business to sell.
Improve profitability wherever you can by increasing margins so you are able to demonstrate steady revenue growth, which will reassure potential buyers. If you can couple this with a business model that shows recurring revenue, buyers will find your business a very attractive investment proposition.
3. Find a buyer/investor
If you are not going to proceed with an MBO you will need to find a buyer. We recommend you find someone to take on the preparation phase for you, to ensure your business is presented in the best light, and to approach potential buyers discreetly, to assess the level of interest and start negotiations. Corporate finance teams at well-established accountancy practices are worth considering for this role; or possibly instruct selling agents (although our experience of this at Tectona has not been good).
4. Instruct top notch professional advisers
It is critical to appoint the right advisers – both accountants and lawyers well versed in transactions like yours. They will ensure that negotiations and the final sale are completed correctly, follow legal requirements and deliver the most tax efficient arrangement for you. I should note too at this point, that the services of a business coach can help to provide a sounding board to ensure you are arriving at the right decisions for you, and to prepare management for their new roles after your departure.
5. Work out a realistic value
At the end of the day your business (or any other asset for that matter) is only worth what someone is prepared to pay for it. Professional advisers can really help you take a realistic view when setting a potential selling price and when the time comes to consider offers.
6. Don’t get distracted
This links with no.4 above. It is very easy to let your focus on running the business slip when trying to manage a sale – there are loads of plates to keep spinning! It is often easier (and probably cheaper) to nominate someone to supervise the sale. This is often your finance director (and if you have not got one, this might be the time to take on a part time finance director), or your professional adviser.
7. The DDD (Dreaded Due Diligence)
You may have heard the phrase “data room” and wondered what that is. Well, it is simply a virtual storage space used to gather all the documents a prospective purchaser would likely need to see. To give you some idea this might include:
- Balance sheets
- Cash flows for the past 3 years and forecasts for the next 5 years
- Contracts in place and appropriate (customers, suppliers, employees, directors)
- Shareholder agreements in place
- IP registrations
- Customer feedback surveys
- Clean title to fixed assets to be included in the sale
The data room is crucial to get right and Tectona have helped many clients collate the right information at the right time so you can stay focused on running the business in the lead up to a sale.
Following these 7 steps will help to prepare you, your teams and the business for a successful sale and position the business to attract a sale price that truly reflects its full value.
Tectona Partnership helps business owners sleep at night by providing one of our 15 commercially savvy finance directors embedded in your management team. A part time solution is usually the most effective for the smaller business. We make sure you have the necessary management information and strategic insight and will tell you what you need to know, when you need to know it. For more information please contact firstname.lastname@example.orgBack to News & Blogs Overview