As a business owner, it’s easy to focus on daily operations and short-term goals.
However, planning for future management and ownership is essential for long-term success.
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Whether approaching retirement or seeking a lifestyle change, selling your business requires careful preparation. Proper planning ensures a smoother transition and maximises value upon exit.
Consider these essential steps to prepare your business for sale:
1. Start Planning Early
Preparation is critical for a successful sale. Planning in advance allows you to:
• Align the business with your objectives.
• Optimise sustainable profitability.
• Address inefficiencies and reduce reliance on the current owner.
• Enhance buyer appeal.
Selling a business is often a once-in-a-lifetime event. Early preparation helps shape the business with your goals in mind, significantly improving sale price and after-tax proceeds.
2. Management Succession
Buyers prefer businesses that aren’t overly reliant on the owner. To address this:
• Build a capable management team for daily operations and strategic decisions.
• Delegate responsibilities and implement systems to reduce dependency on any individual.
This approach makes the business more attractive and shortens the post-sale handover period.
3. Optimise Sustainable Profitability
Consistent profitability drives value. To enhance financial performance:
• Eliminate unprofitable activities.
• Focus on high-margin products or services.
• Analyse customer profitability.
Year-on-year growth in earnings boosts buyer confidence. Timing the sale during strong performance is crucial.
4. Strengthen Financial Reporting
Accurate financial data is essential during due diligence. To ensure a smooth process:
• Use efficient accounting software.
• Maintain reliable financial statements and KPI reports.
• Conduct a financial “health check” to address risks like VAT treatment or asset valuations.
Strong financial governance proves the business is well managed, reducing the likelihood of price renegotiations post-due diligence.
5. Diversify Customers and Contracts
Reliance on a few customers or sectors increases buyer risk. To mitigate this:
• Diversify your customer base across industries or geographies.
• Secure long-term contracts with recurring revenue streams.
• Formalise agreements to instil buyer confidence in future income.
These steps spread risk and enhance value on exit.
6. Tax Planning
Efficient tax planning significantly increases after-tax proceeds. With recent changes to Business Asset Disposal Relief and Inheritance Tax, seeking early advice from a tax adviser will provide more options. Effective tax planning helps:
• Leverage tax reliefs.
• Prepare for potential legislative changes.
Proper planning aligns your sale strategy with tax benefits and avoids surprises.
7. Understand Buyer Expectations
Identifying potential buyers early helps position your business effectively. Common buyer types include:
• External buyers (eg competitors, private equity firms).
• Internal buyers (eg management via a management buy-out).
Tailor your strategy to meet buyer needs, streamlining the process and increasing appeal.
8. Address Compliance and Legal Matters
Buyers scrutinise compliance during due diligence. To avoid delays:
• Ensure adherence to industry, legal and tax regulations.
• Address past non-compliance with regulatory bodies.
• Review contracts for Change of Control clauses that may impact the sale.
Proactively resolving issues enhances buyer confidence.
9. Seek Professional Advice
Experienced advisers are invaluable for navigating complexities in a business sale. A skilled team can:
• Help achieve your objectives and maximise proceeds.
• Identify and resolve issues efficiently.
• Allow you to focus on operations during the sale.
• Ensure a smoother transaction.
Final Thoughts
Selling your business is a significant decision requiring thoughtful planning.
By addressing these key areas early you can maximise value, minimise risks and ensure a successful transition.
Work with professional advisers to make your business “sale ready” and secure the best-possible outcome.
Get in touch with Calum:
Callum Gray
Corporate Finance Partner
E: callum.gray@aab.uk
T. 01224 625111
Learn more and visit AAB’s website today.
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