How to Achieve Maximum Value When Selling a Business

By Clive Hyman, Hyman Capital Services.

When your industry knowledge, entrepreneurial flair or personal circumstances tell you it’s time to sell your business many elements come into play: how it is packaged, marketed and of course, the management of the sales process itself. This will influence the quality of potential buyers you attract, and the valuation you receive.

 

To generate the best offers for your business here are some key steps to be aware of:

 

  1. Keep the owner’s mindset

It is essential that during any sales process the business continues to function as normal and, ideally continues to grow. Advance planning for staff time is essential for this to happen. Without your on-going entrepreneurship the business you are selling will not hold its original and/or potential value.

 

  1. Confidentiality

Keep the confidentiality of an intended sale and only give information to managers and staff on a need-to-know basis. This will help ensure that the day-to-day running, output and achievements of the business are not disturbed.

 

  1. What you are selling?

What is it that you are selling? Bigger businesses may need to split up portions of the business for sale. If you are splitting a business to sell only a portion you have to work out the costs associated with the part that is being sold. Put in place costs for required external services (for example, those the company may currently source internally, but will no longer be able to do so after the split and sale). These budgeted costs need to hold up to third party scrutiny and must be in-line with current market prices.

 

  1. What price is realistic?

If you are a listed company you need to look at the listed market valuations and sales. If you have a private company review sale prices from the last two to three years to form a benchmark price for your company type, scale and size.

 

External advisers may have better knowledge/access to this information so you might want to engage one.

 

  1. Preparation for sale

If the business is an SME, you will need to identify shareholders’ expenses that are charged to the business and other “one off” expenses that may have been charged to the profit and loss account. These figures may need to be added back to the P&L to establish the recurring profitability of the business. Buyers like to see consistent trends and therefore a sale may need to be managed over a two to three year period taking in to account the industry, the market, managing sales and achieving a targeted growth curve.

 

  1. Pre-empt issues

It’s a good idea to get external legal and accounting firms to undertake due diligence on your company. You’ll then know what may come up when a potential acquirer looks at your records. This kind of work is commissioned by you, and the term of references are such that they can be handed over to a potential purchaser at the right time during the sales process. The genius of this is that it allows you to manage any issues in advance and avoid nasty surprises which could led to price reduction.

 

 

  1. Tax position

It is imperative that you understand the impact of any sale on your business’ own tax position; be that corporate and/or personal tax. Depending on the shareholders involved, it may be possible to shape the consideration to enable the tax payable to be minimized legitimately.

 

  1. Warranties and Indemnities

In any sale you have to warrant the information to the purchaser i.e.  you must be able to truthfully say that it has been prepared on a proper basis and gives a true and fair view of the business you are selling.

 

In addition, if certain items come to light a purchaser may be entitled to make a warranty claim. The sale and purchase agreement will need to have a procedure to deal with this.

 

You will also need to give various indemnities on the taxation position of the company, i.e. guaranteeing that the position of the company is as you say it is. Again there will need to be a procedure to deal with any issues, including a notification process if you need to make any payments as a result.

 

  1. Formal documentation

Ensure you fully understand the “completion statements”. These deal with the cash and other assets within the business and lay-out what happens when the sale is completed. By being fully aware of these you can ensure that everything is in good order on completion.

 

As part of any sale an “information memorandum” will need to be prepared. It is usual to instruct an external party to do this as they will be able to present the information in a way that is acceptable to potential acquirers. Such a document may take six to eight weeks to prepare.

 

 

  1. Invest for success

Large quantities of information need to be prepared for a sale and it is unlikely that you/the company can handle it on your own. For an efficient sale a project team will need to be created with a project manager assembling all the data and information that the advisers will require. This is a worthwhile investment of time and money.

 

Finally, the key to getting the best deal is keeping the two games running in parallel until the very end: “business as usual” alongside the sale process.

 

 

ABOUT THE AUTHOR

Clive Hyman FCA is founder of Hyman Capital Services offering expertise in due diligence and managing change in business including raising equity and debt capital, mergers and acquisitions, interim management, board management and governance, deal structuring, and company turnaround. See: www.hymancapital.com

 

https://www.linkedin.com/in/clivehyman

Twitter: @clivehyman

 

Clive Hyman
Clive Hyman