Planning your exit will put you on the front foot during a sale process.
Selling a business is often a once in a lifetime event for an owner manager and planning an exit goes a long way to enabling a smoother sales process. We are often asked “how do I prepare my business for sale?” and whilst there a long list of actions you can take, we have highlighted some of the key questions to ask:
1. Management Team
Does the business have a strong management team or is it heavily dependent on the majority shareholder(s)? It’s very difficult taking a business to market with “vendor dependence” and the buyer needs to be comfortable that there is a sustainable management team without the majority shareholder(s).
2. Management Team Incentivisation
How do you incentivise the management team if they don’t have a shareholding? It’s very difficult to manage a sale process if the management team are not benefiting financially from the sale, particularly if they have to pitch to the new buyer. Planning ahead with an EMI option scheme is one tax effective way of tying in the management team and your accountant should be able to assist with implementing such a scheme.
3. The Quality of Information Available
How well is the Company run? Does it hold monthly board meetings (with minutes), produce monthly management accounts with KPIs and produce an annual Budget? Are the employment contracts up to date and are the stat books in good shape? The business will be scutinised during due diligence and not having up to date information puts you on the back foot during a process.
4. Infrastructure to Support Growth
What are the state of the offices / factory? Are they in good shape and is there an opportunity to expand on the current site? Working from home is not going away but for those companies that are office and factory based, having the capacity for growth is critical; it is counterproductive to present a forecast that shows significant growth without the site being able to support this or a new site is not costed into the forecast.
5. Business Planning
Do the management team have a strategic plan and is this written down as a Business Plan? Demonstrating a formal planning process and a delivery of these plans adds credibility to future growth plans.
6. Customer Dependence
Is there high customer dependence? A high dependence on a small number of customers adds risk for a buyer and they will want to see a diversified customer base in the majority of cases.
Of course, no business is perfect and a buyer will not expect you to tick every box. However, it is certainly worth preparing as far as possible in advance. Engaging with an advisor who understands what is required can help with this preparation, and they will ask the difficult questions the buyer will be asking during the process.
For expert advice on preparing your business for sale, please don’t hesitate to get in touch.
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