There are a multitude of reasons for selling or exiting your business. You may want to free up capital that’s currently invested in the company, or focus more time on a brand new business venture – or you may simply be planning to sell up, retire and exit the business world.
But what are they key things to do before you sell up?
How do you add value and create efficiency prior to selling the business? And what operational, financial and tax-planning considerations do you need to take into account to ensure you get the best possible financial outcome as the seller?
Zahid Mughal, Associate Partner at Haines Watts North London, outlines the 6 key things it’s vital to get right before you sell your business.
What’s your motivation for selling?
There are two distinct generations now, when it comes to the outlook around selling. One is the 50+ owner with a well-established business who’s looking to retire and get their exit strategy sorted. Then you’ve got the new generation where people are happy to start a business at a very young age, and want to make a quick profit and then move on.
Wanting to improve your work/life balance as the boss is another reason to sell up, and of course there’s always the possibility that a competitor will want to buy you out and make a quick acquisition to expand their own business.
So the drivers for the sale will vary, but the important thing is to understand your motivation and what you want to achieve from the deal.
My recent involvement with one of my clients selling their business, and that process of holding their hand through the sale from start to finish, has highlighted some key areas to get right.
1. Get everything shipshape internally
The most important thing is to get everything shipshape internally. If you have the luxury of time in advance of the sale, make sure that your financials and operational processes are in order. So, for example, that your profit & loss and balance sheet are up to date, your PAYE and VAT payments are all updated and that the admin side is all in good shape.
Take the time to tidy up. Then, when you have your due diligence done as part of the acquisition, everything is completely clean and there’s nothing to hold things up.
2. Get the valuation done well
Get your valuation done as early as possible – and get a valuation and price that works favourably for both parties within the deal.
The seller is the party that will usually get that valuation done, but the acquiring company may also get their own valuation done. The key task is to discuss that price and agree on something that’s mutually beneficial to both parties and works in the current marketplace.
There’s no definitive answer to the valuation – you can go to 10 different advisors and get 10 different answers. The important thing is to build a good relationship with your buyer and to make sure everything goes smoothly, without any legal hold-ups.
3. Know your own weaknesses as a business
Understanding where the business has a weakness, and taking action, is critical. Once a buyer performs their own due diligence they’re going to pick up on those weaknesses quite quickly.
Knowing where action is needed makes a real difference. So, for example, it’s important to have clear processes and systems in place for when you transition. That makes the whole transition process easy, the staff know how the business works and the new owner has fewer worries.
4. Make sure your team is really happy
Having a strong, motivated team is important. So do whatever you can to make sure this team you’ve trained and developed are happy and feel secure with the new buyer.
Make sure your staff and key people are on board with the idea of the sale. Your staff will want to know what’s going on and, importantly, if they’re going to have a job. And if they’re bought in that helps massively with the transition between owners, helps with continuity and makes it easier for the existing owner to exit.
5. Get your tax planning sorted
Taking into account the pre-sale and post-sale elements of your exit strategy is vital for successful planning. The tax advice you receive is hugely important, both from a corporate tax planning and personal income tax planning point of view.
With my recent sale, we were involved in a lot of tax planning for the business owner, as well as the legal side and corporate finance elements. So the earlier you start looking at the tax and compliance considerations, the more time you’ll have to plan – and get the best tax-efficient end result as the seller.
6. Work closely with an expert adviser
Work with an adviser you trust – someone who can hold your hand at every step, with access to all the different finance, tax and legal advice you might need. Having all these important aspects to a sale under the ‘one umbrella’ worked exceptionally well.
Having that trust is hugely important, and that’s why we were able to get a really good deal for our recent client, because he trusted our advice and judgement. It’s great to have that level of confidence in your professional adviser, especially when you’re a small business and those decisions will have such a big impact on your life.
The value of a connected network of deal experts
Working with our client on this recent sale has completely transformed that relationship, and allowed us to cover every element of the deal for him.
We’ve had our corporate finance, tax advisors and legal teams involved – and that’s spread the love across the whole group. Having that one point of contact, but with access to these wider multidisciplinary networks, is such an advantage for the seller.
Selling your business will always result in an element of stress, but we can help keep that worry to an absolute minimum, and get you the kind of sale you’re looking for.