Opening the Bonnet on Selling Your Business

26 May 2019

10 Key Areas to Consider Before Selling Your Business

Are you a business owner?  If so, have you considered how you might go about selling your business, either at the point of retirement or to simply realise your investment?  Most business owners typically only sell a business once, therefore do not always appreciate the complexities or pitfalls of this important process…after all, you want to get the best deal possible for your business and maximise your after-tax proceeds.

“Prior Planning and Preparation Prevents Poor Performance”.  We all know this is an old cliché, but we also recognise that it is true far more often than not.  The most effective action you can take to get the best deal possible from the sale of your business is to prepare yourself and your business well in advance of a sale process beginning or before starting negotiations with a purchaser.  Below I highlight 10 key areas to consider:

  • Tax planning can result in increasing your sale proceeds after tax – this is difficult 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, so it is important to plan ahead;
  • Reducing dependency on you, the owner, can result in a more valuable business to the purchaser and shorten the required handover for you period post-sale. It is important to have a secondary management team that can carry the business on if you want a “clean” exit or short handover period;
  • Reviewing who the likely buyers of your business are at an early stage is an important consideration. For example, a management buy-out (“MBO”) may not be possible if the existing management team do not have the appetite to own the business.  Understanding who the likely buyers are in advance allows you to position the business with these parties for a successful exit;
  • Implementing or improving the effectiveness of management accounting and KPI reporting will give you and the purchaser timely visibility of current performance and make the due diligence process much smoother and less time consuming as up-to-date information will already be available (Cloud Accounting packages offer an excellent option for many small to medium-sized businesses);
  • For rental businesses or people/time-based consultancy businesses, understand and monitor utilisation of hire assets and consultants/advisors as KPIs – sophisticated purchasers will request this information and may not proceed without this;
  • Introduce procedures to closely monitor sales backlog and pipeline if you do not have these in place already. This can demonstrate to interested parties the potential for future growth or the sustainability of current performance;
  • Review the mix and concentration of your business on particular customers/sectors. Diversification will more than likely make your business less risky (and valuable) to a potential buyer;
  • For businesses with recurring customer contracts, reviewing these to understand they are in order. “Are they signed?” is a good start, but also considering those that have Change of Control or other key clauses that would be important to a buyer;
  • A financial “health check” is advisable on any key areas ahead of a due diligence process. 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.  Each business will have its own unique considerations; and
  • Have you undertaken all your required steps to ensure compliance with the new GDPR legislation? This is now becoming a more important part of the diligence process, in particular where the buyer is a large group, as fines for breaches are based on a percentage of global turnover for the whole group.

These are just a selection of 10 areas to consider.  The best piece of advice I can give to business owners is to discuss your objectives with experienced corporate finance and tax advisors at the earliest opportunity.  Investing time well in advance of commencing the sale process can increase your price and after-tax proceeds, reduce the handover period for you post-sale, and importantly make the entire process much smoother.

If you require assistance or would like further information on the above, please do not hesitate to contact Chris Thompson (chris.thompson@aab.uk) or your usual AAB contact.

To find our more about Chris and the Corporate Finance team, click here

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