How to prepare your business for sale

Posted on: December 2nd, 2017

Even if you aren’t ready to sell your business yet, there’s plenty you can do to prepare for your eventual exit. BCMS Executive Director Jonathan Dunn explains.

Very few business owners choose to start and build companies purely for the fun of it. For most, the whole point is to turn all that hard work into money at some point. But getting the best outcome from any eventual business sale depends largely on what you do in the run-up to sale. With the benefit of more than 600 successful company sales in the last decade alone, BCMS has identified the top 10 areas for your business to focus on.

Shareholding structure

Check your current company and management structure is fit for purpose. Refresh your corporate governance to ensure it sets boundaries while remaining flexible enough to work alongside an ambitious growth plan. Then get a lawyer to help you simplify your shareholding structure.

Investment cycle

If turnover is flat-lining, it’s likely that the business requires additional investment. If the increased costs and risks required are getting beyond your comfort zone, this starts to set a timescale for finding and securing further external investment. 

Funding levels

To fund your next business growth stage, smaller firms often turn to invoice discounting – a useful method of releasing some of the in-built value in the business. For more ambitious plans, such as premises expansion or new equipment, commercial loans are a popular route. Finally, if your business is generating upwards of £2m in annual profit, private equity is increasingly popular for a mix of loan and equity funding. Consider how these will impact on profit margins, and to help time any shareholder exit.

Management team

If you are growing to sell, consider what incentive the management team has to deliver that growth plan. Unless there is a management buyout on the horizon, you should consider bringing in a bonus structure or a tax-efficient share incentive scheme. Corporate acquirers and investors will want to know who’s going to run the business post-sale. Therefore, it is even more important for owner-managers to take a step back from the day-to-day running of your business, so tying this together with empowering your senior managers gives you a stronger hand when you come to exit.

Processes and procedures

It may seem dull, but all genuine investors and acquirers put a great deal of focus closely on regulatory compliance, and any breach of legislation can see valuations reduce or an offer withdrawn completely. Organise a compliance audit early to avoid future issues arising during the sale process.

Products and services

Who owns the rights to your products and services is a key question during a sale process, and not as straightforward as it may seem. If you have used a third party developer or consultant, you may not own all the relevant intellectual property rights. This may lead to lengthy negotiations – and probably a payout – to assign the rights to your business in all past and future work.

As part of this exercise, you will also gain a deeper understanding of what advantages you have over competing products or services, and can take steps to develop these further and protect that knowledge.

Overseas expansion

This is a huge step for most business owners, as internationalising your business can have wide-ranging and complex legal, financial and tax implications. You will need a robust corporate structure that works across all territories to ensure the business is easy to transfer to new ownership at a future date.

Acquisition strategy

It may sound counter-intuitive to buy companies in order to sell yours, but it is often a faster route into a new market than starting out from scratch, while making your business more appealing when you come to sell.

Putting together an acquisition strategy involves setting your criteria, deciding how to fund deals, and understanding the integration and culture fit issues.

Timescales

Work out milestones for your growth plan, including what to do if growth does not occur in line with expectations. From this, you can work out a good time to hand over the business to new ownership.

Exit routes

Businesses change hands in several guises, including part-sale, management buyout, flotation or trade sale. Your exit options will depend on the size and market positioning of your business, as well as your personal reasons such as work-life balance, retirement or financial exposure.

It goes without saying that many of these areas involve getting expert advice, which can be expensive. But this preparation makes a huge difference in a business sale – not only on the price and terms you want, but also significantly improving the chances of a deal happening at all.

Jonathan Dunn is Executive Director at leading business sale advisor BCMS. Founded in 1989, BCMS has helped sell more than 600 private companies in the last decade alone. The firm has 260 professionals, and is headquartered near Basingstoke. See BCMS.com for more insights on business sales.