Exit routes and cashing in: what to think about when selling your business

by | Nov 20, 2017 | Business

There are as many as 80-90,000 businesses on sale in the UK at any one time. That’s a lot of competition for vendors wanting to get the right price, and for buyers looking to acquire the perfect business.

It also raises many questions. What’s your business worth? What steps do I need to take to make my business as attractive as possible? And how much professional advice am I going to need? As Ran Carmon, an M&A professional said in one of our Ask the Expert videos, “People make the mistake of calling the expert when they’re not needed. And not calling on the expert when they are needed…”

So what should you consider when you’re looking to sell up? Read on…

Start with the end in mind

As a business owner there’s a lot to consider when looking to sell your business. There are the more obvious things like thinking about how to maximise the value and the asking price of your business. However, one of the most important things is to make sure the sale fits with your personal goals.

Are you retiring? Are you looking for a new business venture to get involved with? These are questions you should be asking well in advance of any decision to sell. We stress the importance of building your exit plans into your long term strategy. To start with the end in mind.

But in my experience, there may be an element of indecision or vagueness with regard to exit or succession planning. As we talked about in our last article, a business owner may recognise that planing for an exit or retirement is important, but they don’t see it as urgent. And so sometimes it doesn’t get done.

By planning early, you can make all of the following steps to sell your business much easier.

Optimise performance

The first thing business owners should do is to improve the profitability of the business by removing waste.

There’s no point to putting more business through an inefficient system! And as profitability is often a key measure for the value of your company—with a sales price often based on a multiple of profits—it’s important to remove waste to increase your profit.

At Ripe, we’ve a variety of techniques that can help you reduce the waste in your business and help to improve potential profitability. For example we’ve got a tool to complete a waste audit.

If you’re beginning to plan for an exit, this is where you should consider starting.

Polish the business

In this phase make sure that all the elements of a great business are in place.

This involves locking in your long-term revenues, where possible. The aim should be that the future revenue of the business is locked in—and is preferably done so with with robust long-term contracts. This will help give a potential buyer some certainty over the five year revenue outlook.

Next up will be to secure the shape of the management team. Establish a management structure that removes reliance on the owner. Look to cover the management skills, experience, and processes needed to lead the business in the absence of the owner.

This sometimes happens naturally. I use the example of a client who has been thinking about exiting for some time. And he’s now starting to do it. He’s brought in some key people who are now managing important areas of the business and is gradually phasing himself out of front line activities.

You should also be thinking about reducing debt in the business. A buyer may be less willing to take over a balance sheet with liabilities all over the place. If you’ve got a nice, clean balance sheet where everything is straightforward it makes the sale a more simple process.

Create the sale

You might know some people in the same industry who are looking to acquire to secure a bigger market share.

Or, as the key success factor in maximizing the sales price is to find a buyer who “needs” to buy the business, you might try to be creative. Perhaps you’re in a different industry to a potential buyer, but your business might be a good ‘bolt on’ for their business to help them expand into new areas. This is then a business you might consider approaching.

Ideally you’ve identified (through brokers, networks or your business advisers) several potential buyers and you’ve worked out why your business is essential for each of them.

Remember that this analysis often requires changes to the look and feel of your business. The information gained from the your analysis will allow for a specific and unique process for each potential buyer to be developed.

A note on Due Diligence (DD)

The appetite for DD can depend on circumstances. Some buyers will want to have an extensive analysis completed and others won’t. It can vary and is often linked to the cost of the purchase. If you’re buying a business for £2m then to spend £20k on some DD makes sense. But if it’s a £100k purchase you probably want to spend much less than that.

In reality, some clients might just send us a couple of years of accounts and ask us to look through them and give them some idea of what they should look at. They’ll then go off to do the investigation themselves.

That said, there probably are some minimum things that you’d want to think about for the average sale. Things like leases, employment contracts, and overall terms & and conditions with key customers. It’s also a good plan to check for any disputes or pending litigation.

A helping hand

You’ve probably never tried to sell a business before. You don’t want to come up against a well advised and well experienced buyer who might use their skills, experience and their counsel to negotiate aggressively. Remember that this is where your advisers can step in to give you support and advice.

Be aware of what steps you are likely going to need to take. And then plan for them. The earlier the better. That way you’ll be the business owner who won’t call the expert when you don’t need to. (And who will call the expert when you do)!

And, as always—if in doubt about any aspect of selling your business—get in touch with your friendly North London adviser…

Give Rob or Pratima Glazer a call on 020 8238 8730 for a no obligation chat about what’s next for you and your business.