Benjamin Franklin’s adage, “Fail to prepare, prepare to fail,” is particularly pertinent when it comes to selling a company. Entrepreneurs looking to sell must be ready to address numerous questions during the preparation phase.
Key considerations include identifying your business’s value drivers, evidencing growth, and clarifying your ambitions as an owner. Overlooking these preparatory steps can jeopardise the transaction’s success, potentially resulting in suboptimal financial outcomes or poor timing.
Let’s delve into the essential preparations for entrepreneurs contemplating a change in ownership, from devising a process plan to valuing the company.
Formulating a Process Plan
Understanding why you’re selling is crucial, as buyers often question the rationale behind selling a profitable, high-potential business. Clarify your goals and those of any co-owners to guide decisions on exit strategies, transaction processes, and timing. Assess your business model, current standing, potential tax implications, and other risks affecting the sale’s timing.
Identifying Key Value Drivers
Ensuring a fair valuation hinges on understanding your business’s value creation and growth prospects. Consider factors like new business initiatives, market expansion opportunities, and company strengths such as:
- Reduced reliance on specific customers or suppliers.
- Demonstrated growth via customer base expansion, talent acquisition, new locations, or product/service diversification.
- Market health and future prospects.
Analysing Financial Dynamics
A detailed financial review is critical for valuation, encompassing unique selling points, team credentials, market conditions, competitive edge, reputation, and intellectual property.
Focus on financial health evidence through income statements, balance sheets, and analyses of financial structure. Buyers will scrutinise these alongside your working capital – the difference between assets (receivables, inventory) and liabilities – which should be optimised before selling.
Optimising Sale Timing
While many entrepreneurs have a sale deadline in mind, careful timing selection is vital for a favorable deal. Typically, selling a business in the UK takes six to nine months, followed by a post-sale period with the owner-manager still involved. This transition time varies, so prepare by strengthening your management team and delegating responsibilities ahead of the sale.
In summary, thorough preparation, from process planning to timing optimisation, is key to a successful company sale. This approach ensures a smooth transaction and reflects your business’s true value and potential.
It’s a detailed process and you may benefit from engaging a business exit strategy consultant to assist you in the process.
