Things to think about before trying to sell a business
We recommend spending time to plan a sale well in advance of when you might want to actually begin the process.
To help you, we have compiled this list of things you might want to consider:
- Why Are You Selling?
It is important to have a credible reason for a sale, one that a purchaser can understand and feel at ease with. It also helps structure the most advantageous transaction. Reasons for a sale can include:
- Ill health
- Trading difficulties
- An unsolicited approach
- Matrimonial settlement
- Director / Partner disagreement
- Change of direction
- Advantageous tax circumstances
- Other business interests
- Business has grown above the management experience level
What kind of sale will deliver the best value?
- Asset and goodwill or share transfer
- MBO, MBI or BIMBO (various Management Buy Outs)
- Trade sale
It is very important from the outset to know what the tax consequences of a sale will be.
- Capital Gains Tax (CGT)
- Roll over relief
- Taper Relief
- Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT)
Does your business have management in place that can run things in your absence? If not, you need to consider the length and type of handover you are prepared to give.
Are your price expectations realistic? How much would you pay for your business? Educated buyers are smart and will only consider reasonably priced businesses.
How, what and why?
- Maintenance of profits
- Market multiples
- Return On Capital Employed (ROCE)
- Add backs for personal ownership
- Net Asset Value (NAV)
Most buyers may want to defer some of the consideration. Many buyers will be suspicious if you don't consider an element of deferred payment as it suggests a lack of confidence in your business, or a possible hidden agenda. That said, all deals are unique and structure depends on individual circumstance.
Being able to supply correct management information in a timely fashion shows that you are organised and efficient. Buyers may lose interest if basic information isn't to hand. A buyers and his advisers will probably raise the following issues in order to understand your business:
- 3 years accounts. Monthly management accounts, if in current year
- Business plan
- Company literature, brochures etc.
- Company information, shareholdings
- Asset inventory
- Staff: salaries, ages, job titles and length of service
- Reason for selling
- Ongoing management
- Profit record
- Strong cash flow
- Stable margins
- Good management controls
- Good spread of customers
- Up to date contracts or agreements
- Potential for growth
- Position in the market
- Strong brand identity
- Price expectations
- Tidy well maintained appearance
Most adverse situations, such as landlord/lease problems, outstanding loans, tax arrears, unfavourable equipment leases, health and safety issues, other regulations, and staff problems can be overcome providing they are disclosed.