Preparing a business for sale
Whether a decision has been made to sell a business or not it is always beneficial to consider how a prospective buyer would perceive your business. Viewing the intricacies of your business from an outside perspective is typically the best way to identify areas within your business that could possibly reduce overall value upon an eventual exit.
The best way to do this is to undertake a due diligence process on your own company. For those of you who do not know what due diligence is, in layman’s terms it is basically taking a good look ‘under the bonnet’ of your business, covering all areas including operations, financials and human resources etc.
Upon entering acquisition negotiations, buyers will always look to chip down on the value, and as such, any uncertainties or lack of clarity with regards to the business will always act to strengthen the buyers negotiating stance and, as a result, will inevitably reduce eventual value.
By undertaking a thorough due diligence on your business prior to a sale, this will enable you as a business owner to identify any underlying issues and ensure that everything adds up. This will also grant you the opportunity to address anything which may arise, potentially preserving value.
There are certain things to pay particular attention to when undertaking an internal due diligence which buyers tend to look out for. First, always ensure that you have contracts in place with clients and suppliers. It is surprising how many businesses operate without firm contracts in place and if this goes unaddressed it will reduce the value a buyer is willing to part with significantly.
Also, continuing the topic of contracts, it is important to consider the business property lease agreement in place should this be relevant to your business. Upon purchase, a buyer may seek to relocate in order to integrate into existing operations, if there are significant obstacles which prevent a buyer from doing this it could effect value or possibly prevent a deal all together.
Another important thing to consider is overall dependency the business has on its owner or other key individuals. Many businesses are intrinsically linked with the business owner’s skills, knowledge and relationships, which hugely effects a buyers perceived value. It is imperative that overdependence upon certain individuals is eradicated and the most effective way to do this through the implementation of well-documented systems and processes.
When you are heavily involved in the running of a business day-to-day it is difficult to take the time out to consider something which may seem so far away, however, given the potential financial implications it is hugely important. Procrastination when it comes to considering and planning an exit strategy will more often than not cost owners hugely in terms of lost value. It pays to plan ahead and considering a business tends to be the majority of individuals most valuable asset the value of considering and planning for your exit in advance will be hugely rewarding when the time eventually comes to sell.