Selling a business is a topic of much debate and discussion but despite this, it is rarely planned with serious consideration typically only crystallising then an approach is made, market factors change, the owners near retirement age or perhaps have a shift in their life objectives.
Most business owners typically only sell a business once, therefore do not always appreciate the complexities or pitfalls of this important process…after all, they want to get the best deal possible to recognise their efforts and be suitably rewarded in terms of after-tax proceeds.
“Prior Planning and Preparation Prevents Poor Performance”. We all know this is an old cliché, but in the context of selling a business, it is true far more often than not. The most effective action a business owner can take to get achieve the best deal possible outcome from the sale of their business, is to prepare both themselves and the business well in advance of a potential sales process beginning or entering into negotiations with an interested purchaser. Below I highlight 5 key areas to consider:
- Tax planning can result in increasing after tax sales proceeds – this is challenging to do immediately before or during a sale process, so it is vitally important to consider options as far in advance as possible. New Entrepreneurs Relief rules extend the qualifying time limit to two years, which could impact the availability of significant tax savings, therefore it is important to plan ahead;
- A financial “health check” is advisable on any key risk areas ahead of a due diligence process. Each business will have its own unique considerations with industry and tax compliance key areas of focus for any potential purchaser. For example, this could include correct treatment of VAT on exempt/zero-rated sales or the market value of assets against “book” value in the accounts.
- Reducing dependency on the owner, can result in a more valuable business to the purchaser and shorten the required handover period post-sale. It is important to have a motivated, reliable and robust management team that can carry the business on if the vendor wishes a “clean” exit or short handover period;
- Implementing or improving the effectiveness of management accounting and KPI reporting will provide the vendor and the purchaser timely visibility of current performance and assist in making the due diligence process smoother and potentially less time consuming as the demand for real time and accurate information is crucial to this stage of the process. The increase in Cloud Accounting packages offers an excellent option for many small to medium-sized businesses in facilitating this ; and
- Review the mix and concentration of your business on particular customers/sectors. Diversification will more than likely make the business less risky (and valuable) to a potential purchaser;
These are just a selection of common areas which we regularly discuss with business owners and encourage them to consider. Investing time well in advance of looking to sell a business can increase the value and after-tax proceeds, reduce the handover period for the vendor post-sale, and importantly, facilitate an efficient and effective sales process.
By Chris Thompson, Senior Manager Corporate Finance, Anderson Anderson & Brown
To find out more about Chris and the Corporate Finance Team, click here.