Preparing your business for sale is like getting your house ready to put on the market.
You need to:
- Get it in the best possible condition to achieve the highest price.
- Eliminate issues that give the buyer an opportunity to negotiate the price down.
In both cases, spending some time and money on making some key changes and improvements can pay considerable dividends. These changes include:
- Making yourself redundant- If you are the business and it could not run without you, then you don’t have a business to sell. Ask yourself if I took 6 months off would my business still my here and turning a profit? If it wouldn’t be, you need to look at how you can make yourself redundant.
- Maximise profitability early on through enhanced value and cost efficiencies- this is important and there are some easy things you can do to improve both these factors, for example, executing quality control and cost efficiency programmes.
- Sort out your legal issues and documentation- It is important that you resolve any legal disputes and have strong legal documentation in place from terms and conditions to employment contracts.
- Put strong financial controls in place– you need to have tight financial controls in place and a set of up-to-date financial statements along with solid cash flow projections..
- Put standard business processes in place– this is more important than many business owners think. You should map out everything from the customer journey through internal processes to payment collection so someone can easily take over your business.
If you would like some professional support, then Adam Gilbert at Else Solicitors has a wealth of experience in buying and selling businesses and dealing with commercial issues from putting in place the needed legal documentation for new businesses to negotiating big distribution deals with household brands. If your company wants to maximise its value, then we invite you to contact Adam Gilbert, Head of Corporate and Commercial and Partner at Else Solicitors on 01283 526 229 or at firstname.lastname@example.org.
The rest of this article will look at:
- Is Selling the Best Option and is it the Right Time?
- Making Yourself Redundant
- Maximising Profitability When Preparing Your Business For Sale
- Legal Issues and Documentation
- Financial Controls
- Efficient Business Processes
Is Selling the Best Option and is Now the Right Time?
Before you put your business up for sale you need to consider the below questions:
- What are my objectives as a business owner? For example, do you want to fund your retirement or realise part or all your investment so you can start another business or invest elsewhere? Do you want to maintain some financial or management control of your business?
- What are my objectives for the business? Where do you see your business going when you sell it? Does the buyer need to invest in it or is this a simple change of ownership and business as usual? Are you planning to sell to a competitor who will take on your clients and staff?
- Who else will be affected and what will they need in the future? This includes employees, shareholders and key clients and suppliers. If you are the lynch pin between these groups, then things might not hold together when you exit making your company unattractive to buyers (see Making Yourself Redundant).
Depending on the answers, you may want to sell your business outright or maintain some financial or management control. Equally, you may want to consider passing the business onto a family member or talk to your team about a management buyout.
If you do want to sell, is now the right time? Is your business attractive enough to sell now or does it need some more work? Ask yourself:
- Is my business healthy? If not, can I sell it to a buyer who can turn it around?
- Are the key basics in place such as legal documentation, financial records and business processes?
- Does my business have a good financial track record? If last year was hard but this year is good, would it help delaying your sale by a year to show a consistent profit?
- Who would want to buy it? Remember this can include your current management.
These are all important questions. It may be better off delaying the sale of your business to increase its value or you may be compelled to sell now, but even in this case you can take steps to increase the amount you will be offered.
Making Yourself Redundant
You need to make it so your business can run without you. You should be able to take a 6-month holiday and come back to find your business running smoothly.
There are 4 steps to making yourself redundant:
- Hire the right people – If they are not already in place, then you need to on-board people who share your vision and will fit into your company You then need to articulate your vision to them and step back while they bring it to fruition.
- Delegate the actual work to the best people – This is vital. To make yourself redundant, you must delegate the important tasks to your most capable and trustworthy people. This includes maintaining relationships with clients, suppliers, shareholders and your employees.
- Work on their growth – With the right people, you need to work on their growth and development to make them capable of taking responsibility for the business. This includes ensuring the work is done and outcomes are successfully achieved as well as trusting them to make major operational decisions.
- Encourage team members to grow and develop on their own – In addition to helping them grow, you must encourage your employees to develop themselves so, when you do leave, they will keep growing.
This is part of preparing your business for sale where you make sure your business is in the best possible condition it can be. It generally involves:
- Attracting more regular, long-term customers;
- Maximising the value of your offering, so you can increase your prices;
- Initiating cost efficiency measures, such as re-engineering business processes, implementing IT solutions, outsourcing unprofitable work etc.
- Eliminating unnecessary expenses and
- Reducing any extravagant expenses.
This may take some time but it is well worthwhile and will increase the value of your business.
Legal Issues and Documentation
It is vital that you:
- Resolve any legal disputes before you put your business on the market. This includes collecting late and bad debt as well as dealing with any litigation.
- Have strong legal documentation in place.
Key legal documentation which must be strong and fit for purpose includes:
- Memorandum and Articles of Association
- Shareholder Agreements
- Non-Disclosure Agreements
- Directors’ and employees’ contracts
- Your employee Handbook
- Terms and Conditions
- Client contracts
- Health and Safety Policy etc.
When businesses are formed the needed legal documentation, such as Memorandum and Articles of Association and Terms and Conditions, are often downloaded from the internet. While this is acceptable for when you are starting out and money is tight, they do not cover your business properly.
Many business owners never update these important legal documents and it is not unusual to find that many partners write their own shareholder agreements, which do not cover circumstances like one partner wanting to leave the business or dying.
It is important that all your legal documentation is up to date, correct and fit for purpose when you are preparing your business for sale. If it is not, then it can lead to major problems and greatly devalue your business, especially if your employment and client contracts are lax.
Else Solicitors regularly review legal documentation for clients. We invite to you contact Adam Gilbert, Head of Corporate and Commercial, 01283 526 229 or at email@example.com to get a health check on your legal documentation.
Strong financial controls are very important. The best place to start is by having a good Financial Director (FD) in place. This could either be a full-time employee or a consulting Financial Director or Chartered Management Accountant who does a few days a month. If you do not have a Chief Financial Officer, then it is worth investing in a consulting
An FD performs a different function to your accountant. While it is vital thaFD or Chartered Management Accountant to help you strengthen your financial controls and produce projections before putting your business on the market.t your accountant produces reliable and accurate financial statements, you should have an FD to help you to put the required financial policies, processes and controls in place.
Preparing your business for sale making sure that you have up-to-date accounts and solid cash flow projections along with strong financial policies and procedures, will make your business an attractive proposition to any prospective buyer.
Efficient Business Processes
The final piece in the puzzle of preparing your business for sale is well defined and efficient business processes. These make it easy for a new owner to take over and keep the business running profitably.
It might be worth investing in a new IT system to automate some processes and make others more efficient. While this may take time and money to achieve, it will reduce your costs and increase your profitability in the long term which is exactly what potential buyers are looking for.
Even if you are not looking for a new IT solution, it is worth spending some time mapping out your existing business work flows. You would be surprised at how much more efficient you can make your business by simply mapping out your work flows and rationalising them.
When you are preparing your business for sale, you will need some professional help to make your business as attractive as possible to a potential buyer. It is important that you get the right support from trusted advisors as this can greatly increase the amount you will get for your business.
Else is a modern, dynamic and forward thinking legal practice who offer the expertise you expect from a large, traditional law firm.
You will discover that we are different to other legal firms. We will help you sort out your commercial legal documentation and then look at other ways that we can add value to your company so you can sell it for more. This could include introducing you to new customers or suppliers in our extensive network or offering you some new insight into your market or your business.
Else Solicitors has an enviable reputation for always going the extra mile and offering a personal, jargon free service. Your business is not only in trusted legal hands but will also benefit from our extensive business knowledge, experience and contacts.
If you would like expert legal support and advice, whether this is help0ing you in preparing your business for sale, increasing the value of your business or getting your legal documentation in order, then we urge you to contact Adam Gilbert, Head of Corporate and Commercial and Partner at Else Solicitors on 01283 526 229 or at firstname.lastname@example.org.
Experience the Else difference today!