Once you make the decision to sell your business, there’s no going back. It’s a substantial lifestyle and career change, seeing you relinquish control of a company you have led for years to someone new.
Due to the enormity of the decision, it is natural to want to ensure selling is 100% the right choice. You will also want to conduct the sale to the perfect buyer, at the maximum value and under suitable conditions.
You need to contemplate the sale of your business to meet the necessary criteria and make sure you’re ready to take the plunge. Doing so will allow you to move forward with confidence and get the best from the situation.
We have listed nine integral considerations you should make before selling your business for maximum results.
Company value
The first step when selling a business is to understand your company’s value. This is integral as it will highlight the ideal selling price, which can be used to refine your target buyer or the sale structure.
The value of your company will vary dependent on several factors. A high-performing business with growth potential is likely to be more valuable as it can give the buyer expected profit on their purchase. A failing business will be a harder sell and lower value.
Get a third-party valuation of your business to give an accurate and neutral view of how much it is worth. If the valuation falls below your expectations, you may wish to do work pre-sale to maximise the value.
The valuation of your company can also streamline your options for selling, with higher value businesses having more options. If your value is low, you might need to reconsider how you sell to attract suitable buyers or consider liquidation instead.
The type of sale
There are two main options for a business sale. First is an asset sale, in which someone buys your customers, equipment, fixtures, leaseholds, trade names, inventory and so on. You retain control of the legal entity of the company.
The second is a share sale, in which the buyer attains the legal entity of the company. Although unusual, they may not necessarily buy the business’s assets.
Have a preference for your sale type in advance. It will allow you to refine buyers, focusing only on those who meet your criteria, and help you to market it appropriately.
The target buyer
Most sellers have an ideal candidate they would like to pass their business on to. While it might not always be possible to tick every box, listing the most crucial requirements will help to focus your search for a buyer.
Start by compiling the criteria a buyer must meet to proceed. This may relate to the sale price and structure, experience, leadership values or other conditions you want to fulfil when leaving your company.
Next, list your ‘would like to haves’ – those factors that aren’t necessarily deal-breakers but would be a preference.
Having these features listed will enable you to better target an appropriate buyer and vet any potential offers. By fulfilling your criteria and finding a suitable buyer, you can walk away from the company knowing you have left it in safe hands.
Your accounts
In the same manner that you want to find a suitable buyer, any interested party wants to ensure your business is worth acquiring. They will need to conduct due diligence, and one of the most vital parts will be the company’s financial performance.
Before taking your company to market, check that your accounts are up to date and ready to be shared with prospective buyers. It is worth getting an accountant to complete an audit if this is something you have not already done.
Looking into your accounts will help you flag any issues that may deter a buyer or reduce the sale value. You should aim to be transparent and honest – as any discrepancies could disrupt the sale – while making sure everything is up to scratch.
Your staff
Many businesses have employees who could be affected by a change in ownership. If you have forged relationships with your staff, you will want to protect them and their jobs during the sale process.
In order to do this, you need to seek buyers who have plans to grow with the current skills in place. You may choose to add this to your target buyer criteria.
Ultimately you will never fully know the motives of any potential buyer. Though in most cases they will look to keep on your employees, there will be instances where it suits them to do otherwise. Ultimately this will be their decision and they must be compliant with TUPE regulations.
Your shareholders
If you have company shareholders, they will have an opinion on any ownership changes. They may also have the rights to sign off prospective buyers before the sale occurs.
You can choose to buy out the shareholder before purchase, providing you have the finances available to do so, and it abides with your shareholder agreements.
It is key to communicate regularly with your fellow shareholders about the sale process. You will need to run critical decisions by them.
Intellectual property
Intellectual property (IP) is a significant part of many businesses. It underpins your products and services and often gives you a distinct proposition in the market that you want to protect from competitors.
Examples of IP include copyrights, trademarks, design rights, patents and proprietary technologies.
You can choose to retain your IP or sell it alongside your company. Whichever you choose, you need to ensure it is protected and clarify who owns it in the selling process.
A lawyer should assist in protecting IP, including filing the necessary paperwork and ensuring it is covered adequality in any sales documentation.
The post-sale plan
Although you may just have put your company on the market, it is crucial to think about the post-sale plan.
After the sale is completed, you need to create a communications plan to inform customers, staff, suppliers, banks and other stakeholders in conjunction with the new owners. There may be other threads you need to tie up too. Your plan should account for this, allowing you to complete the necessary actions in the available timeframe post completion.
Other factors may be considered, such as earn-out clauses or deferred payments (if applicable).
Understanding if these are applicable before you sell is crucial. It enables your legal team to draft the appropriate clauses into documentation so that everyone is clear about what will be achieved and when with no room for misinterpretation. This will include creating confidentiality agreements, agreeing on when deferred payments will be made or establishing the length of the earn-out period.
External support
During the sale process, you will need the assistance of external resources, including corporate finance, lawyers, accountants and other advisors. Having these parties involved is crucial to managing the sale and drafting the necessary paperwork. It also reduces the risk of complications that could derail an agreement and avoid any blind spots that could put the buyer or seller at a detriment.
They also act as a helpful mediator during the negotiation stage.
Aim to seek appropriate contacts before you sell to be confident the right team is managing your sale. This will also give you a chance to inform them about the business and your goals so they can help you get the deal you want.
Conclusion
There is no denying that selling your business is a significant decision. That makes it all the more crucial that you take the right step at the right time with an understanding of the various factors that impact the process.
By undertaking the appropriate pre-sale considerations, including identifying your company’s value, visualising your ideal buyer and ensuring everything is in order, you will increase the chances of a successful and smooth sale.
Remember only 18% of businesses ever get sold and this is largely due to over inflated valuations by external advisors, so make sure that you choose yours carefully.
This will allow you to fulfil your goals while leaving your company in capable hands.
If you are looking for support ahead of a business sale, we can take you through the process and help you approach the sale in a strong position with maximised company value.