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How to get the best value when selling your company

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Thursday September 15, 2011 at 10:00am

There will be few business owners who haven’t dreamt of being offered a multi-million pound inducement to sell their company. But for most it remains just that, a dream.

You can take some steps towards making that dream a reality however, once you’ve decided that selling your business is the right move for you. Business succession planning or exit is something many business owners put off, often to the point where it’s too late. My advice to every business owner is the same – don’t put it off. Start the process now. In fact there are some who would say that the day to start preparing your business for sale is the day you set the business up, that way all roads will lead to a successful sale.

Of course, there are very few business owners that do that, but if you have thought about selling here are some pointers you can follow to make sure you get the best possible value.

Decide on the value - It may seem obvious, but you need to put a firm value on your business. Before you even consult any experts you need a sense of what you think it is worth. Provided you are realistic you should have a much better idea than any third-party of its true value, as you know it inside out and understand the potential.

Once you have a value in your mind then you can approach a third-party to sense-check it. Don’t get too emotionally involved and certainly avoid holding out for unrealistic valuations. An objective analysis will confirm the valuation. After all your business is really only worth what someone else will pay for it and current market conditions, the state of the global economy and any sector specific threats, changes or opportunities will all have a bearing on the value.

Prepare the business for sale - Before you start talking to people about selling your business or even getting any valuations it’s important to make sure the business has been groomed for sale. In many owner managed businesses this can take a year or two because it relies in developing systems, pinning down procedures and firming up the management structures and team so that the business can run successfully without you as the leader. It’s also important to resolve any operational issues and ensure that company PR messages do not contradict or threaten the forthcoming sales process.

Some buyers may want to buy the company merely as an investment and will not want involvement in day to day matters, so it’s important that managers are in place who can carry on the business effectively once ownership has been transferred.

Tighten up the numbers - Any potential buyer will want to see accurate financial information. They will want to feel you have a handle on your business and that doesn’t just mean looking at the past, it means showing them future potential.

Many buyers look for investments where they can make improvements to increase profitability and return. Some will buy businesses showing debt and high-interest payments as they can write it off against tax liabilities or other businesses in their portfolio, others prefer the businesses they purchase to be debt free. Either way, your accounts need to be scrupulous, and all the figures explainable.

Consider potential buyers – You might at first think you’ll take anyone who comes along, but actually you will generally get a much better result if you consider who your ideal buyer is likely to be. This will help you decide who can help you with the sale (better to choose a firm of accountants for example that can provide access to this market) and how and where you will market your business.

It’s certainly worth considering your competitors, peers, customers and suppliers as potential buyers. Your buyer may be closer to home than you think. And of course the more you know about the potential buyer, their business and the value they could achieve from your business, the better position you are in to push up the sale price.

Give yourself time – Selling your business is not something that will or should happen quickly. You need time to prepare your business for sale, time to negotiate and time to consider the offers you are presented with. You never want to appear to be in a hurry. The more patience you have the better the odds for a profitable sale. So if you are seriously considering selling your business, at any stage, the time to start preparing for that sale is now.

Andy Parker
Chartered Accountant and Business Advisor

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Parker Chartered Accountants and Financial Advisors is the trading name for PLW Advisors Ltd (Registered No. 10396831), and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here