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Selling your business – Fail to plan, plan to fail

Richard Gillan Richard Gillan

Most business owners will realise that at some stage they are going to have to consider selling their business to release value for their retirement.

Many, however, will defer discussions about a sale because they believe that they are not ready to sell their business, and they overlook the fact that the best time to sell, and to maximise value, is a time when you want to, rather than when you have to.

There are many circumstances beyond an individual’s control which may force an owner to sell their business quickly, for example, ill health, disputes or divorce. Typically, when this happens, the owner will tend to receive a lower price than initially hoped for.

Preparing for sale

Preparing a business for sale is key, if the value is to be maximised. A sale will take time to organise therefore starting to prepare early will give rise to less complications and more options when the sale process gets underway. Choosing a time to sell which suits you, when numbers are hitting their targets and the cash position is maximised, will be beneficial in achieving a higher price for the business.

In a sales process any potential buyer will spend time reviewing the history of a business. They will ask to see financial information, often going back three years or more, and ‘robust’ financial information is critical. Information that requires fewer adjustments will lessen any confusion for a potential buyer and likewise, ensuring that information provided is free from error will add credibility and protect against potential deal failure or ‘price chipping’.

It is also worth considering what will be important to a buyer such as having agreements in place with customers, suppliers and staff. Ensuring that these agreements are in place during the normal course of business can reduce any unnecessary complications.

Potential buyers may also want to understand how the business will continue to operate effectively when the existing owner is no longer in position. Planning for succession is therefore critical, and a strong, incentivised management team will go some way to allay those concerns. However, a handover period is also often required by a purchaser, with few owners afforded the luxury of walking away immediately upon completion of a deal.

Not all sales processes will be successful. Some of the main reasons businesses fail to sell include unrealistic value expectations of the owner, an owner being unprepared, or underestimating sale time. 

Conclusion

Seeking expert advice on the likely valuation of the business upfront will help the chances of a successful sale. An expert team should have experience of recent deals to underpin and defend the valuation of the business. Serious purchasers will tend to have their advisory team so it is necessary that sellers are similarly prepared. Advisors will also add value by being able to handle the process, allowing the owner to focus on maintaining business performance.