Preparing to sell your business

Monday 16 February 2015

If you are about to sell your business it is important not to underestimate the amount of time and effort involved.

Not only can a typical sale take upwards of six months from the date a deal is agreed in principal to completion, but best practice would be to start preparing your business for sale as soon as you have an inkling that you may wish to sell the business in the future.

Why?

• Any last minute attempt to paper over cracks, or make superficial improvements will be easily uncovered by your buyer’s legal advisers during the due diligence stage.
• Timing of a sale can often be dictated by market conditions and the financial climate. Windows of opportunity may be short lived, so you should be ready to move once the conditions are right.

Take appropriate advice early on in the process from solicitors, accountants and tax advisers. Your advisers can assist you in preparing the business for market, and put you in touch with other professional advisers who can help market your business.

Make sure your finances are in order:

• Get your accounts up to date
• Ensure your tax and VAT is paid up to date
• Try to reduce your costs e.g. by renegotiating supply contracts – be careful not to make excessive cuts in essential areas
• If possible, sell underused equipment
• Reduce long term investments e.g. marketing and recruitment
• Make realistic provisions for bad debts
• Reduce stock
• Settle any outstanding litigation – a buyer is unlikely take on business which has unresolved disputes without first agreeing a discount

Collate your existing contracts, including:

• Supplier contracts – check whether they are transferrable to a buyer
• Client contracts – make sure you have a standard contract and/or terms and conditions in place which is transferrable to a buyer
• Subcontractor contracts – if possible, make sure you have a standard contract in place which is transferrable to a buyer
• Employment contracts and consultancy agreements/arrangements
• Property documents e.g. leases and/or licences
• Insurance policies
• Licences, permissions, approvals and registrations with governing bodies required to carry on the business

Key individuals and contacts:

• Ensure the business is not dependent on your involvement by putting a management team and written procedures in place
• Incentivise key employees to stay with the business e.g. cash bonuses and enterprise management incentives (EMI) schemes
• Ensure that the business is not overly reliant on one or two key clients
• Inform suppliers of the potential sale so they can raise invoices and you can ensure any credit and liabilities are documented appropriately
• When the sale is imminent, consult with your employees

Once your business is on the market:

• Make sure you are ready to answer any questions the buyer may have as to why you wish to sell the business – they will need to be comfortable with your motivation for the sale
• Ensure that you keep running the business as if you plan to keep it long term – a buyer will want to see that the order books stay full and profits healthy throughout the sale and purchase process.