There comes a time for most business owners, when they need to make an exit plan, either because they want to retire, or perhaps they want to start a new venture.
There are a number of routes to take, and one of these is selling the business on. If this is an option you are considering – even if it is some way into the future – it is never too early to plan. The more prepared your business is for sale, the more likely you are to maximise the return.
Here are some factors to consider.
Start planning as soon as possible
Selling a business is a lengthy process. The earlier you start planning, the better – at least two years in advance, if you can. This gives you time to address important details like updating the company’s share structure, moving property out of the business, or enhancing your financial reports to show a stronger quality of earnings.
For example, to be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief), you must have held your company shares for at least two years. If you plan to transfer shares to a partner, doing it at the wrong time could cost you significantly when you eventually sell.
What are you selling?
You might not want to sell every single asset in the business. It’s crucial to define what you want to include in the sale. Your personal plans – whether you’re looking to retire, reinvest, or start a new venture – will influence this decision.
So which of your assets to you want to sell? A trading business with a property portfolio? Investments? Trademarks? Intellectual property (IP)?
Some businesses are sold as an ‘asset’ sale, which just transfers the key assets to the buyer, some go through a ‘share’ sale which transfers the shares of the business to the buyer.
Seek a valuation
Before you can put your company on the market, you need a realistic valuation. While a business is ultimately worth what a buyer is willing to pay, a professional valuation gives you an objective and measured price to start with.
Decide how you want to sell the business
You have two main options for selling your company:
What are your financial goals?
The sale price for your business isn’t just about what a buyer will pay; it also needs to meet your personal financial goals. One way to determine this is by calculating a multiple based on your personal expenditure and how long you need that income to last.
The most important thing is to determine if the final price, after taxes, will be enough to fund your retirement and future investments.
A question we often ask business owners, is the “why?”. Why are you selling, and what are you aiming to do post sale – retirement, new business, relocation…
Keep updating your plan
The market is constantly changing. To get the best return, you need to sell at the right time. This means you should continually look at economic forecasts and re-evaluate your sale plan. Factors such as the base rate of interest may affect the valuation as many buyers will need to borrow in order to acquire your business. So make sure you:
Build a team around you
Without you at the helm, your business could be worth less. To make the company a more attractive prospect for buyers, you need to build a strong, experienced management team who can run the business effectively without you. This will increase the value and proposition for perspective buyers
One way to do this is to gradually step back from the day-to-day operations and empower your senior management with more responsibility. By the time a buyer comes along, they will see a company that is more than capable of running without you.
Prepare for due diligence
Before a sale is finalised, any potential buyer will perform due diligence to ensure everything is in order. To make this process as smooth as possible, you need to have your company’s house in order.
A messy due diligence process – with incomplete records, unexplained issues, or poorly defined procedures – can cause costly delays and may even lead to the sale falling through. Consider getting an audit or hiring a consultant to refine your procedures. The more organised and streamlined your business is, the more likely the buyer will sign on the dotted line.
When the time comes, due diligence is a two way process. You need to check over the buyer – are they right for your business, are they capable of sourcing the funds, do they have the expertise to run the business?
Work with your accountant
Finally, why not work closely with your accountant, such as the team here at Optimum? Throughout the entire pre-sale process, we can help you ensure everything runs smoothly and that you achieve your financial goals. We can provide customised management accounts, conduct a pre-due diligence audit, and even help you find the right buyer to achieve your desired sale price.
Are you ready to get your business ready for sale? Then why not chat to the team here at Optimum? You can get in touch with us here.
