What do I need to consider when selling my business?
Probably the first item on this subject is valuation, how much is my business worth? Some would argue that valuing a business is more of an art than a science, but there are some accepted methods such as multiples of profits, net asset valuations, cash generation and price/earnings ratio. To assist with the valuation it is important to understand the “non financials” such as how the business operates and how the industry operates. Some industries have readily accepted methods of valuation.
When selling any asset, you generally want to get it in the best possible condition(commercially) to get the highest value and the same applies in this case. In the interests of boosting profitability, consider whether margins could be improved, can costs be reduced or deferred?
Non-business or surplus assets should be disposed of, as a business acquirer will not want these and you should consider paying a pre-sale dividend.
It is important to seek professional help when selling a business. An accountant will be experienced in assisting with the sale of businesses and may be able to pass on some advice. Tax advice is crucial at this stage of the process to ensure you keep tax liabilities to a minimum.
Finding a buyer is a key consideration and there are various routes to take. The most common route is to start by creating a “sales memorandum”. This is intended to be a selling document and should therefore show the full potential of the business. The sales memorandum ought to be accurate and professional because it will need to stand up to the due diligence of a buyer.
It is then worth while trying to identify potentially interested parties. Once a short list has been made, they should be approached offering a small amount of information. If more information is required, then the interested parties should sign a confidentiality agreement and be presented with the sales memorandum.
In an ideal world, negotiations start with numerous buyers and you have the choice of the most attractive deal. Your accountant will act as an independent party and negotiate with the buyer on your behalf. This will allow you to carry on running the business and also preserve your relationship with the buyer.
Deal structure can be as simple or as complicated as you want it to be. Deferred payment and a handover period are common but can be quite challenging.
At Wright Vigar, we are able to help you maximise your business value and assist with selling it. If you require more information, please do not hesitate to contact us.
