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Actively prepare for selling your business to get the best price

By Clive Hyman, Hyman Capital Services

Once you’ve decided you want to sell your business you’ll have a busy time ahead. There is a lot to do to achieve a successful sale. However, if you get the price you hope for it will all be worthwhile.

To help you get the right results here are my tips.

1. Keep control of information

Keep an intended sale confidential. Only inform other staff when they need to know. This will help keep the day-to-day running smoothly.

2. Keep your business focus

During the sales process you must continue to run your business as normal.  Keep your focus on your customers and delivering maximum value. If customer satisfaction goes down the value of the business you are selling may fall.

3. Use a project manager

Given the volume of information required in preparation for a final sale, it’s unlikely that you can handle it on your own. Don’t risk losing a sale by skimping on paying for project management help.

4. Be clear what you’re selling

Are you dividing a business to sell only a part? In this situation you’ll need to identify the costs associated with the part that is being sold. For example, the business may currently provide some services internally.  This won’t continue after the split/sales. Budget for these costs realistically. Potential buyers will be looked at carefully at these costs.

5. Benchmark value

Be realistic about your price expectations.  If you are a private company analyse the sale prices from the last two-three years for your company type, scale and size to get a benchmark price.   You may need an experienced external adviser to help here.

6. Establish recurring profitability

As SMEs, you’ll need to identify shareholders’ expenses that are charged to the business and other “one off” expenses that may have been charged to the profit and loss account. These figures may need to be added back to the P&L to establish the recurring profitability of the business. Buyers like to see consistent trends. This means a sale may need to be managed over a two to three year period taking in to account the industry, the market, managing sales and achieving growth.

 7. Due diligence in advance

It is particularly important for SMEs to check your own business sale fitness before any due diligence from potential buyers happens. It’s advisable to get legal and accounting firms to undertake due diligence on your company so there’ll be no nasty surprises which could negatively impact the selling price

8. Tax

You must understand the impact of any sale on your business’ own tax position; both corporate and/or personal tax. Depending on the shareholders involved, it may be possible to shape the consideration so the tax bill to be legitimately minimised.

9. Warranties and Indemnities

In any sale you have to warrant the information to the purchaser i.e. you must be able to say that information has been prepared on a proper basis and gives a true and fair view of the business you are selling.

If certain items come to light a purchaser may be entitled to make a warranty claim. The sale and purchase agreement will need to have a procedure to deal with this.

You will need to give various indemnities on the taxation position of the company, guaranteeing that the position of the company is as you say it is. Should any issues emerge, there will need to be a procedure to deal with this, including a notification process if you need to make any payments as a result.

10. Statements and Memorandum

The “completion statements” are very important. These deal with cash and other assets within the business and lay-out what happens when the sale is completed. If you’re fully aware of these you can ensure that everything is in good order on completion.

As part of any sale an information memorandum will need to be prepared. It is usual to instruct an external party and may take six to eight weeks to prepare.

As I said there will be a lot to do. Always think though your time commitments and those of your team. Advance planning, followed by meticulous project management are the keys to a sale you’ll be happy with.

About the author:

Clive Hyman FCA is founder of Hyman Capital Services offering expertise in due diligence and managing change in business including raising equity and debt capital, mergers and acquisitions, interim management, board management and governance, deal structuring, and company turnaround.