Getting your Business “Sale Ready”
We talk to lots of business owners everyday and in almost every case their motivations are similar. They want to:
- grow the value of their business so that they can sell it for a sizable capital gain;or
- reduce their involvement in the business, run it under management and enjoy the future dividend stream
We know that regardless of the business type or the owner’s future plans for the business, having your business in a position where it’s “sale ready” will definitely make the business more profitable, lower the owner’s risk and increase its value.
Here’s our 10 step plan to help you get your business ready for sale
1. Prepare well in advance
To maximise the sale value of your business you need to start planning months and in some cases a number of years in advance. Most purchasers want to see a strong track record of good performance, not some pre-sale window dressing in the months leading up to the sale.
2. Articulate your Vision, Values and Strategy
A business with a clear purpose and direction and a framework for achieving it is a fundamental in adding value when it comes time to sell.
3. Optimise your corporate structure
Is your business structured appropriately to optimise your position in the event of a sale?
Do you have an Advisory Board in place? A board with at least one independent, non-Executive Director provides a statement of intent and signals strategic and professional commitment.
4. Separate family and business issues
The decision to sell the business should trigger a change in behaviour to take the “family” out of the family business. This is the time to:
- review any special arrangements with related parties
- tidy up the balance sheet to exclude any assets that won’t be sold
- change shareholder expense habits to proactively normalise the books prior to the sale
5. Build a strong leadership team
Having a carefully selected and well balanced team with the requisite skills to run the business when you are not there adds significant value to the business. Always remember a buyer is buying the business and not you.
6. Know your numbers
Buyers will value your business based on the data you provide. Providing well presented, accurate, historical data and well constructed future forecasts adds value to your business.
- Establish strong financial controls and processes to ensure accrual based management reports are produced monthly or quarterly
- Implement 3-way Management Reports (P&L, Balance Sheet and Cash Flow)
- Recast the last 3 completed financial years of data in the new reporting format
- Produce a 24-month 3-way forecast
7. Improve Profitability, Cash Flow and Working Capital Management
Now’s the time to focus on maximizing sales and gross margin and reducing expenses to improve profitability. It’s the time to prove the business has strong cash flows so tightly managing your debtors and creditors is a must. It’s also the time to focus on optimizing working capital so addressing any inventory issues in the business is a must. A business with a low level of working capital reduces the total investment a buyer needs to make in the business in future and makes your business more attractive
8. Get everything documented
Businesses with high levels of documentation are easier to do due diligence on and significantly more marketable as the buyer knows exactly what they are buying, and some buyers will pay a premium for this. The areas to focus on are:
- Business management systems – your policies and procedures in all areas of the business
- Human Resources – ensure all of your employees have current Employment Agreements and your key team members are locked in to long term, commercially sensible agreements.
- Leases for Property and Equipment
- Supplier Agreements
- Customer Contracts
- Franchise / Co-op agreements
- IT Strategy
9. Analyse and mitigate risk
Buyers will be looking for stable, well managed businesses to buy. If you can prove that you have identified the risks in and to your business and have a plan in place to mitigate or manage the risks the business will be more attractive.
Issues like customer concentration, obsolete stock, doubtful debts, current or potential litigation should be identified, and plans documented to manage them. If necessary provisions should be made in your financials to accurately reflect the risks.
10. Be discreet
Business sale processes can be incredibly destabilising and distracting for the business once they become common knowledge and team members start to wonder where they fit in the long term. Where possible we recommend complete confidentiality and discretion for as long as possible.
If you’d like some assistance in helping get your business sale ready, please get in contact with us.