The question of ‘how to prepare your business for sale’ is one we often get asked by business owners. Preparing to sell a business can take years, and it’s something that business owners should carefully plan for in advance. You might be dead set on selling up and sailing off into the sunset, or maybe you’re just weighing up your options. Either way, this article will hopefully help answer some of your questions on how to prepare for the big sale.

Overview of the Sale Process

So, what is involved in the sale process? Is it as simple as sticking your old sofa online?

Unfortunately not, and it can take years. The general steps of selling your business include:

Preparation

Preparing for sale, as discussed in this article is step numero uno. It requires business owners to get their business in ship shape so the next owner can come in and take the reins without any unnecessary friction. (More of this later).

Marketing

Then once your business is ready to go, it’s time to get yourself out there. Marketing your business in the right way is essential to get the best deal and to ensure the right buyer or buyers are attracted. Collate a list of potential buyers and begin reaching out to them through all the various means. Industry networks, brokers, online platforms and targeted advertising are all tried and tested methods of getting your business in front of the right people.

Negotiation

So hopefully by this point, the marketing has been successful and you’ve found a buyer. It’s time to get down to the negotiations. It’s always best to get legal help or introduce a broker at this stage, and the elements to consider are:

1. What the purchase price is
2. How the business purchase is being financed
3. How the assets and liabilities will be distributed
4. Any other conditions that might be unique to your situation

 

Due Diligence

Once you’ve outlined terms of the deal it’s time the buyers’ solicitors take a deep dive into your business. This process is called due diligence and has both a financial and a legal aspect to it. Essentially, the buyer will employ a solicitor to thoroughly examine every aspect of the business and uncover potential issues that might affect the deal. It’s important at this stage that you’ve been completely truthful about your business, warts and all. Any nasty surprises or half-truths that surface during the due-diligence process could scupper the deal or affect the price.

 

Getting the legal documents together

Once a comprehensive look into the company has taken place, the next phase is to create all the glamorous legal documentation. This is the essential part of the whole process, as it ensures both parties are on the same page, everything is compliant, and everyone is protected should anything go wrong.

With the help of a business lawyer, the buyer and seller alike should prepare the documents needed, including the purchase agreement, asset purchase agreement, stock purchase agreement and any other documentation that may relate to the sale.

Of course, your solicitor will be able to help answer these questions around the details of these.

Closing

Once everything is written down in black and white, you’re on the home stretch.

At this point, it’s important to coordinate the closing process, including the execution of final documents, transfer of ownership, and the exchange of funds.

It’s important to arrange any necessary approvals, consents or filings required to complete the sale, such as shareholder approvals or regulatory approvals.

Once these are ticked off, it’s time to pass over ownership and ensure the new owners have everything they need.

Checklist for Selling a Business

So that’s a quick overview of the process of selling a business, but how can you prepare for the sale of your business? If anything, these are probably the most important aspects of the whole process, and making sure they’re done properly will ensure you get the right price and that the sale goes through without a hitch.

1. Financial Preparation

Getting your financial house in order before you go to sell your business is the first step. What do we mean by that?  You’ll need anything that helps the next buyer know the full financial history of your business. After all, you wouldn’t buy a car without a full-service history, would you?

Make sure all your financial statements are up-to-date and accurate which means compiling all your balance sheets, income statements and cash flow statements from as far back as possible.

• Profitability Analysis

The golden question is, is your business profitable? It’s worth conducting a thorough analysis of the business’s profitability, including gross profit margins, operating costs and net profit. It might not be all good news, but ironing out any issues will give you time to address and rectify them. If you need to improve profitability, this will allow you to do something about it.

• Revenue and Sales Trends

Although profit always takes the limelight, revenue is just as important to potential buyers. Do a full analysis of your revenue and sales trends over time to build a picture of the business’s potential. Any consistent revenue streams, customer contracts or recurring revenue can be incredibly reassuring to potential buyers as it lets them know they’re walking into a business that already has some steady income sources that may take the pressure off in those tentative first months.

• Evaluate your Assets

What do you own as a business? Do you have tangible or intangible assets, or a combination of both perhaps? This includes everything from equipment, machinery, any property, intellectual property – to name just a few.

If you haven’t already, it’s worth getting a second opinion from a professional who can value some of your assets. Information is key, and the more of it you have, the better placed you’ll be to sell your business.

• Debt Analysis

On the flip side, what debts do you owe? Do you have loans or any other lines of credit that you need to disclose? It might be tempting to sugarcoat this part, but this will come out during the due diligence process, so it’s best to be honest from day one. Obviously, any big debts may impact the eventual sale price, but there is no benefit to hiding this information.

• Tax Planning

Like any major transaction, selling a business comes with its own unique tax implications that are worth considering as early as possible. If you get in touch with a tax expert early enough, you’ll be able to carefully tax plan to develop tax-efficient ways to reduce your liability. This might involve structuring the sale in a certain way to maximise tax benefits like capital gains tax exemptions, or deferring taxes through instalment payments. More than anything, you want to make sure everything is done in a tax efficient way that still abides with good ol’ HMRC.

• Financial Projections

Based on everything mentioned above, along with market trends and potential growth opportunities, it’s important to provide some realistic projections for the future. At this stage it’s important to be realistic, as tempting as it might be to shoot for the moon. Once you have all your financial information up to date, formulate a realistic forecast of where your business could grow to.

Getting your financial house in order can be an overwhelming task at first, but with the right preparation and assistance, it can be the difference between getting a reasonable offer, and getting a great offer.

Speak to one of our financial advisors today who’ll be able to provide guidance on getting the best bang for your buck, no matter what stage of the process you’re at.

 

2. Tidying Up Operations

Efficiencies

So, you might have the financial side of the business organised, but the operational side of things is just as important. The aim of the game here is to improve efficiency, reduce costs and improve the overall attractiveness of the business to potential buyers.

How do businesses do that? Well, each business will vary, but a good way to start is by analysing your workflow and ways of operating, and from there you’ll be able to build a picture of what needs to be improved. You might uncover processes that are taking an unnecessarily long time, where a small tweak could make a big difference.

Or you might identify bottlenecks, which might prompt more hires in that area to alleviate some of the pressure. Whatever it uncovers, good or bad, you’ll then have the information to do something about it if necessary.

Once you have a unified way of doing things the right way, it’s important to instil this using standard operating procedures (SOPs), which means everyone in the business is on the same page. It will also mean that new owners can pick things up from where you left off with relative ease.

Margins

In terms of cost saving, it’s worth reviewing unnecessary spending, assessing your inventory and assets and making any energy-efficiency investments that could help contribute to a more profitable business.

Looking at your staffing needs and assessing any improvements will also put you in good stead for a buyer. What are your team structures like for example? Where are the gaps? Do you have a top-heavy structure? Or maybe you don’t have enough junior staff to do-the-do.

It might uncover a huge lack of training or progression that you need to address, and failing to do so could leave you less attractive to buyers who might see this as a risk to the workforce.

And then the final piece of the puzzle is technology and automation. Are you using the most up-to-date technology? Are you automating where possible? If not, how much will it take to do so? Put yourself in the mind of the buyer. Thinking about the long term and staying ahead of the industry is core to the success of a business. However, if they see a project that needs work bringing it up to speed, it could affect the price.

In comparison to buying a house, some people will be happy with a ‘do-er upper’, but others will want something that requires minimal work at the outset.

 

3. A Full Legal Review of your Business

After ticking off the points above, you might feel well on your way to selling your business. However, there is one extremely important aspect of running a business that many owners neglect, and that’s the legal framework that holds it all together. You’ll need to do a full assessment of all your contracts and legal documents, licenses, trademarks and copyrights and everything in between.

Legal Documents Matter

That includes everything from employer contracts to service agreements, supplier agreements, shareholders agreements and employee handbooks. Anything that dictates how the business is run, and how it operates needs to be watertight.

If this hasn’t been done, then now is the time. Often, small business owners will set off without really thinking about the legal documents, choosing to save on cost rather than fork out. However, just like a seatbelt, a legal document or contract will save you when you need it most.

Protect your big idea

In terms of your intellectual property, they’ll need to be properly documented, registered, and protected to ensure no one can steal your big idea. Not only that, but make sure any patents, trademarks, and copyrights are up to date and legally sound as they’ll no use otherwise!

Our legal team can offer a full audit of your business to make sure no stone is left unturned and that you’re fully protected from any issues that might occur. Get in touch with our legal experts today.

 

4. Marketing, Marketing, Marketing

By now you should have all the financial, organisational and legal areas tied up, so onto the fun creative part (in our incredibly bias opinion).

Defining how you set yourself apart from other businesses is an important aspect of selling a business, and is what will attract potential buyers. What is your competitive advantage? What sets you apart from the competition? How does your strategy differ from other businesses in a similar field? You should be able to answer these questions already, but it’s worth critiquing them to ensure they really do set you apart.

The first way to do this, is by conducting a thorough competitor analysis:

Identify your competitors

There will be businesses already on your radar, but what about new emerging businesses or startups that are doing things differently? Although you probably did this exercise when you started the business, it’s worth doing another full assessment of the market and your competitors to see where you stand now you’re considering a sale. Benchmark yourself against them, what do they do well, what do you do better? How do you compare on price, service, branding, size, structure, etc, etc. Any nuggets of information here will we useful, so don’t leave any stone unturned and do your research!

What are your Unique Selling Points?

Based on that, what sets you apart? What is it that makes you different? Fundamentally, why would a buyer choose your business and not your competitor down the road? Clearly defining your unique selling points and focussing on your benefits is an incredibly useful exercise that will help you sell yourself to prospective buyers.

Outline your Value Proposition

Craft a unique value proposition that communicates the benefits and value that your business provides. Use social proofs in the form of customer testimonials, reviews, and case studies to back up your claims and validate your proposition.

Where next?

Once you’ve set out what differentiates you, it’s time to outline the growth potential of your business. Conduct a thorough analysis of the market, highlight any trends or emerging areas and any potential new customers that a new owner could tap into.

Consider how your business could scale, and put together a forecast of what this would look like. Does it involve new offices? Or a new product offering? Or perhaps an improved model? It might feel counterproductive to plan for a future after you leave the business, but this will give potential owners an idea of where the business could grow to.

Positive Spin

With a sale in your sights, it’s time to start thinking about how your business conveys its message and brand. If you haven’t invested in marketing up to this point, then it’s wise to do so now.

Digital marketing and public relations campaigns focussed on your businesses’ success stories and growth potential will help set the scene for potential buyers and increase confidence in your brand.

Thought leadership articles in industry media publications, prominent speaking spots, podcasts, and award entries are a few of the many ways to start to make a public imprint for your brand.

Releasing positive business stories to relevant business media will help paint a positive picture of your brand and entice buyers to build on your successes. This is the part that may not come naturally to everyone, but shout publicly about all the things you’re doing well.

The gradual drip of media coverage will start to make waves and your name will be talked about in your industry and beyond.

 

Taking the Next Steps to Sell Your Business

The process of preparing for the sale of your business can take years, or months. It depends on where you are at on your business journey and how much (or little) needs to be done before you can hand over the reins. Most business owners will have an eye on the sale in advance of the eventual change of ownership. This article acts as a starting point, and covers some of the elements that business owners will be able to address themselves.

However, when the time comes to sell, it’s best to seek professional advice from a firm like us that can:

• Identify Potential Buyers
• Find out how they intend to fund the purchase of the business
• Give you a fair valuation
• Conduct both the legal and financial due diligence (yes, there is a difference!)
• Advise you on the tax implications of a sale
• Prepare all the legal documentation to ensure the deal is water-tight
• Guide you through the full sale process from start to finish.

If you’d like to hear how we could help you sell your business, get in touch today.

If you still want more information, find out all there is to know about buying and selling businesses in our ultimate guide.