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Company News:
Beanstalk helps Surrey NanoSystems think big with £4.5m follow-on funding round
Beanstalk corporate finance secures successful sale of Everything Legal
Beanstalk victorious at prestigious Finance Monthly Global Awards 2012 Awards
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Preparing to Sell Your Business
Beanstalk Management has been working with a number of clients who are looking to sell their businesses within the next 1-5 years. Here is our advice on some of the things which should be done to prepare a business for sale. Being prepared is the key to maximising the value of any business as well as ensuring that the sale goes as smoothly as possible.When planning to sell a business, it is important to remember that selling a business can take up to 12 months and may involve on-going commitment during a transition period.
1. Value your business
It is important to understand a realistic value for your business as the very starting point for any divestiture process. Any valuation needs to be objective, industry specific and from an external source.
A valuation will give you a base-line for gauging buyer offers and will give you an idea of what you can expect to net from the sale. It will also tell you your business's market position, financial situation, strengths and weaknesses.
Valuations can be obtained from an accountant or a recognised business broker. It is important to make sure the company performing a valuation has access to your most recent management accounts and financial forecasts. Most importantly, they need to understand current industry sentiment and have good proxies for valuing your business - experience in selling firms of your type is obviously helpful as well.
2. Prepare your accounts
Potential buyers will generally require three years of historic accounts. The better prepared and more professional your accounts, the better the impression you'll make. Solid accounts also make the buyer's due diligence more straightforward.
3. What is the business' true profitability?
Many small and medium sized businesses claim a variety of non-operational expenses. Understand what these expenses are and have supporting documentation to justify their exclusion.
In addition, there may be infrequent expenses (often called "one-offs") that the business has incurred during the past three years that should be excluded in a buyer's analysis of recurring cash flow.
4. Financial advice
An early conversation with a financial advisor to understand both the personal and corporate tax situation is imperative. An understanding of your tax situation will impact timing and may influence deal structure.
5. Legal and statuary paperwork
Review your incorporation papers, permits, licensing agreements, employment contracts, leases, customer and vendor contracts. Make sure they are readily available, current and in order.
6. Succession planning
If the owners of the business are absolutely vital it is important to know who will support a buyer after the divestiture transaction. There should be a succession plan in place before going to market. It is particularly important to show how any day-to-day responsibilities of the current shareholders can be picked up by other resource post acquisition.
7. Divestiture motivation
Buyers are always curious and somewhat sceptical as to why a seller wants to exit a business. Be prepared to articulate your reasons.
8. Build your advisory team
Strongly consider hiring an intermediary, either a business broker or an investment banker, to represent you and help you through the selling process. Start interviewing business brokers, legal representatives and accountants who are proficient in mergers and acquisitions.
Finally, always keep focused on running your business. It is all too easy to let the performance of the business decline because you're too focused on the sale of your business. This will only give buyers additional negotiating power to lower their offers. A great advisory team will let you focus on running the business while they get on with the job of selling it for its maximum value.
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