19th July 2017

While undoubtedly a great opportunity to realise value, selling a business can be an extremely complex and time-consuming process. James Allsopp, senior corporate finance manager at UNW, highlights some of the key considerations for business owners who are contemplating an exit.

The sale of a business is typically a long-term objective for many entrepreneurs. Whether it be in preparation for retirement or to pursue other business interests, many will only experience this type of transaction once in their lifetime. As an advisor, we are often approached when the decision to sell has already been made, but it is vital that business owners call upon the right advice and experience at the earliest opportunity to ensure the best deal for them and their business.

When is the right time to sell your business?

This isn’t an easy thing to assess, but market dynamics and the prevailing economic environment are usually strong indicators. When possible, we look to engage with a client well in advance of any sales process (up to two years). This ensures that we can work together to develop a deeper understanding of their market and help determine the ‘right time’ to sell.

How long does a typical sales process take?

This can vary but, taking into consideration the preparation and marketing of a business, it can be upwards of six to nine months. The quality of business information and the enthusiasm of any potential buyers are often the main timeline determiners. Throughout this period, it is essential that you continue running your business as if you were keeping control of it for the long term.

What can you do to prepare?

The more effort spent preparing a business for a sales process, the more attractive it becomes to buyers. Buyers will rarely know the ins and outs of the business of interest, and will make an assessment based on the information presented to them. Telling the accurate ‘story’ of the business will help maximise value during any negotiations, and transparency from the outset will ensure the valuation of the business is deliverable.

Some key factors to consider in advance of a sales process include:

Tax planning: this applies to both personal and business planning and is often the determining factor in how much post-tax cash a sale generates. Ensuring that business owners, in the event of a sale, can obtain Entrepreneurs’ Relief (ten per cent effective tax relief) on their capital gain is a basic but necessary process, yet the conditions must be satisfied for at least one year prior to any transaction – a point often overlooked by business owners.

Meaningful management information: how a business is presented to potential buyers is critical to enable them to accurately assess any potential risks attached to a purchase. As a minimum, this will include the prior two to three years’ detailed profit and loss account and balance sheet. Inaccurate information can have a negative impact on the value of your business, or even scupper a potential deal completely.

Robust forecasts and predictions: a buyer’s valuation of a business stems from its perceived future cash flow. Being able to demonstrate carefully considered and supportable forecasts can help to justify strong pricing.

The emotional aspect: for many business owners, selling the business they have devoted a huge part of their lives to can be emotionally difficult, so you need to be certain that this is the correct decision before any sales process begins.

 

At UNW, we boast one of the largest corporate finance teams in the region. We support clients throughout the sales process, from the initial stages right through to deal completion and beyond. For more information, please visit our corporate finance page here

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