Preparing a business for sale: what’s the plan?

Selling your business is a huge decision for an owner-manager, especially when you’ve invested many years of money, toil and heartache in building up your own company.

In this four-part series, we will look at each of the core elements needed to prepare your owner-managed business for a sale.

In part one, Paul Simmons, Senior Partner at Haines Watts Slough , outlines the key considerations when selling up and the need for a clear, trackable business plan.  

Planning for a sale

When it comes to selling your business there are two things that can happen – there's the planned sale, and then there's the unplanned sale.

When your business is looking like a good proposition – turnover-wise, profit-wise and market presence-wise – an interested buyer may approach you. But this kind of ‘out of the blue’ sale is highly unusual.

The more common situation is an owner planning to sell over a certain time period. Selling the company becomes a key business goal. This goal is generally driven by how much money you want for the business, and your own personal circumstances.

Getting a significant lump sum early on in life is an attractive proposition. How you achieve this will depend on your own values and personal objectives.

For example, do you feel it’s important to spend more time with your family now, or to keep your nose to the grindstone, grow the business and be able to take £5M from a sale for future financial freedom.  

Defining your timescale for staying in the business

The timescales for selling up are all about personal choices and how much money you need from the sale.

But it’s also about knowing how long you’ll be needed in the company, post-sale. As the seller, the average time you’ll stay in the business after selling will be two years. The handover process takes time, and most buyers want you around to help guide the ship. But once that’s over, should you just sit back and live the life of Riley?

In terms of clients that I've helped to sell, the most ridiculous example was a guy in his thirties who sold up for $4 billion. Clearly, he didn't need to work again, but he is working now, because he's still young – you can't just play golf all day, after all.

A more typical example would be a client who sold his business for £4 million. He’s 50 now and he's just set up another business in the same industry. Most owners are not ready to retire completely – and the entrepreneurial itch is a hard one to ignore.

Knowing WHEN to sell can be an age-driven thing, combined with what your hobbies and interests are, and what you're going to do with your life.  

Planning out your personal future

If you’re going to tie your sale strategy in with your personal goals, you need a robust plan and some clear projections of the money you’ll need post-sale and into retirement.

We work closely with financial advisors, Tilney , who have some sophisticated modeling tools to help you plan out your personal finances. By inputting your household bills, the cost of your annual holidays etc. they can calculate a fairly accurate personal cash forecast.

This total then becomes the lump sum you need from your sale in order to maintain your lifestyle. So, if you know £3M is your goal, you can structure the business and plan to deliver that potential sale price at the right time.  

Adding value to meet your goal

To achieve the desired price, your company needs to be an attractive proposition to buyers – and that requires a clear focus on nurturing the business and kicking it into shape.

Here are some of the key elements to consider:  

1.   Build the best team

A standard place to start is your management team. As the current owner, you’re a key part of the day-to-day running of the business. Getting your management team ready to take over post-sale is vital and means asking yourself some important questions:

• Is the current team involved deeply enough in the management of the business?

• Are they capable of making significant business decisions without your guidance?

• Does the team understand your operational setup, or is it all in your head?

• How can you get the management team properly involved and more proactive?

Promoting your senior people up to director-level positions can be a great way to get them embedded in the company and incentivised to stay. You don't want your key people leaving, as that diminishes the value of the company.  

2.   Removing yourself from the business

Once you've strengthened the management team, the next stage is for you to step back – so you’re no longer the central driver behind the day-to-day business operations.

To achieve this:

• Delegate and allow your team to demonstrate they’re capable of running the business

• Step back and allow the team to fulfill their individual potential and take on responsibility

• Look at ways to incentivise your key players – e.g. giving the team shares, bonuses or other rewards that drive long-term commitment.

3.   Focus on sales and business development

To attract a potential buyer, the company needs to be a stable proposition. This means having a clear focus on the future path of your sales, business development and market position.

When a buyer looks at your financials and management accounts, they want to see:

• A healthy balance sheet, combined with good cashflow and profit & loss

• A good track record of sales and profits, with trends that show steady growth.

• A demonstrable level of stability in the business – both now and in the future.

Working with an expert

Getting the whole business looking shipshape is no simple task, and it’s a lot easier to achieve when you work with specialist advisors who can help lighten that load.

We can help with:

1. Planning and strategy – to define your sale goals and generate a three to five-year plan to deliver the return on investment you’re aiming for.

2. Share ownership – so you have the most appropriate types of share schemes in place for you, your staff, your family and the future prosperity of the business.

3. Tax planning – to help you plan your personal and business taxes, maximise your end profits and ensure you can claim entrepreneurs’ relief (ER).

4. Forecasts and projections – to help you model your long-term sale plan, and help you track your performance against these targets.

5. Valuation multiples – the price of any business is based on the recurring profit multiplied by a number. We’ll help you calculate that 'price earnings multiple' so you know the value you can generate (generally, between four to six times your profit).

6. Increasing profits – so you improve the quality of your earnings, by focusing on making all areas of the business as profitable as possible.

7. Working with the right clients – so you know which customers are driving profit and don’t waste your energy on unprofitable customers.

8. Finding the ideal buyer – our Corporate Finance team will help find a buyer, all handled quickly, discreetly and efficiently to deliver the optimum sale price.

Part 2: Enhancing the quality of your earnings. In the second part of this ‘Preparing your business for a sale’ series, we’ll talk about how to secure the quality of your earnings from a sale, and how you need a forward-looking approach to your sale strategy from the very beginning.  

Talk to one of our Business Advisors about planning your company sale strategy