The last two years have been the toughest most entrepreneurs can have imagined, never mind experienced. With relatively few exceptions, every sector and every size and shape of business has been disrupted by the pandemic. Only the unprecedented scale of government support has kept many afloat. Inflation is surging ever higher and now we have another major global financial shock from the war in Ukraine. Little wonder that business owners are wondering if this is the time to explore selling their business or seeking a merger.
Before putting a company on the market, there is much to do to smooth the path to a deal and, most importantly, to maximise the eventual proceeds. In this first article on preparing your business for sale, we look at how to take maximum advantage of your business’s existing positives.
Preparing your business for sale
What state is your business in?
Even at the best of times, businesses have rough edges and the odd skeleton in their financial cupboard. But they also have jewels; priceless relationships with key customers or vital suppliers, a consistently positive cash flow profile, products with high margins, or exciting new projects in the development phase. Counter-intuitively, many of the things that make a business attractive to buyers are ‘soft skill’ upsides, which cannot be valued in pounds and pence. Before starting any sale process, it will pay handsome dividends to stand back and take an objective view of how they can be enhanced.
Mission critical relationships
Customers or clients which provide a significant element of profits and suppliers without whom operating your business would be negatively affected are important assets. Even if they don’t appear in the balance sheet, they are the core of the business. They need to be identified and serious consideration given as to how the decision to sell might impact these relationships.
Potential buyers will ask this question. But the discussion on this point will be more productive if the contribution of these assets to the business has not just been recognised, but also has been analysed and shared with the buyer. It will be important to any buyer that there is a plan in place to manage the ownership transition in terms of preserving these relationships.
Formalising any informal arrangements
In a perfect world, all relationships with customers, suppliers, landlords and other stakeholders would be fully documented. In practice, some will have been properly recorded originally, but circumstances may have changed without the original paperwork being updated. Other arrangements will have grown up through custom and practice without being formalised. When preparing your business for sale or a merger, all of these loose ends need tidying up. Buyers will be impressed by this sort of good housekeeping.
Putting a proper management structure in place
Labour shortages and the ‘Great Resignation’ are two unmistakable features of commercial life after two years of the pandemic. Hundreds of thousands have left the labour force while huge numbers quit jobs they disliked for greener career grass elsewhere. Some companies have been forced to change their business model as a result, but for potential buyers the questions are more fundamental.
Buyers will look beyond the entrepreneur who started the business or has taken it to the current successful level. They want to see a well-groomed possible successor ready to step up if necessary and a competent senior management team working productively together. Shaping your team into a sound management structure with clear responsibilities and plugging any skills gaps are essential when preparing your business for sale.
The work force
Buyers will be delighted if labour relations are good. They will want to see a company where staff morale is high, pay rates are competitive, staff retention is strong, and there is no history of labour or HR disputes with individuals or the work force in general. If this describes your business, this is another positive, but it needs to stand up to due diligence scrutiny.
Documenting reporting structures
If you have good lines of internal communication and strong but proportionate controls, it would be wise to get them documented to demonstrate how organised your business is to interested parties. It will help buyers understand the culture of the business and plan how to interact with it post acquisition.
Getting expert advice early when preparing your business for sale
Achieving the best outcome takes focus and detailed knowledge of the dark arts of the M&A world. Attempting it without professional help risks a poorer result and will be a huge distraction for a business owner and their management team. It is always wise to avail yourself of the wisdom and support of experts from the beginning of the process.