Packaging your business for sale can be a daunting task. To assist potential sellers, we have prepared a checklist which will hopefully assist. By considering the issues below a business owner should be able to present their business at its full potential and hopefully, realise the maximum return.
Financial hygiene
To secure the best valuation for your business (either from an accountant or a licensed business value), the business’ financial information must be up-to-date and in good order. The business accounts will ideally go back two to three years and demonstrate the profitability of the business. If you are preparing the business sale mid-financial year up-to-date management accounts are essential.
Forecasts for the year ahead are also helpful (assuming a good year is anticipated).
Intellectual property
Potential buyers will be concerned as to what precisely they are buying, particularly where intellectual property is involved. Intellectual property belonging to the business must be protected and properly registered where appropriate. Particularise what makes up the intellectual property belonging to the business and identify why this is of value to a prospective purchaser.
Business contracts
It is crucial that these agreements are in writing, particularly if your business relies on repeat sales business or supply arrangements. Buyers will require such agreements to be secured by contracts of a sufficient duration to enable the business to continue to trade as it did at the time of sale while the new owner gets to grips with running the business. If existing arrangements are ready for renewal, attend to these promptly as these arrangements will be a factor in the value of the business.
Premises
If the business relies significantly on its location, either because it has generated goodwill at its location (for instance a restaurant or a shop) or because relocation would be difficult or expensive (for instance a manufacturing site), it is important that the ability of the business to continue in that location has been secured.
Businesses that operate by lease must ensure that they have a sufficient term left on the lease. Less than four years may discourage buyers from investing. Extend your lease if necessary.
Employees
In certain industries, the value of the business is built on the quality of its staff. Ensure that any key employees are settled and are likely to remain with the business post sale. If employees are on fixed term contracts consider extending their contracts.
‘Skeletons’
If there are any problems looming on the horizon, consider whether this is the best time in which to be trying to sell your business. Concerns such as litigation and pending litigation, prosecutions or loss of significant contracts will all be disclosable during the business sale arrangement (at the due diligence stage).
If you still wish to sell your business (and need to sell your business) be realistic as to the impact such issues may have on its value. Be open with your adviser over these issues so that an appropriate assessment of risk can be conducted and a value placed on them.
Method of sale
Consider how you propose to sell your business and to whom. Business brokers can provide excellent advice on how best to go to market.
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Disclaimer
Ashbrooke Law publications are intended to provide guidance and general information. They should not be relied upon as legal advice. Formal legal advice should be sought on matters of interest arising from this article.