A Guide To Preparing Your Business For Sale

You can take several steps to prepare your business for a sale that can significantly improve the amount of value you extract from a buyer. The factors that affect how potential acquirers will perceive your company apply whether you plan to exit your business in the short, medium, or long term.

And it's never too early to get your business in tip-top shape for sale and eliminate potential issues that could surface in the due diligence process. When preparing for the sale of your business, one of the most important things you can do is put yourself in the position of the acquirer. If you were buying your company, what information would you want to see to make the appropriate decisions? And what would you change about the company to make it more appealing?

When the time comes to sell, you must consider the best deal structure for you with current and future objectives in mind. This consideration encompasses many essential factors, which can become quite complicated. (This is why you should enlist professional M & A guidance to navigate the process.) 

Let's dig into what you will need to put on your planning list. 

Proper Documentation

The M&A process will include a comprehensive audit of your financial records and other business concerns. You will need to organize all the necessary financial statements you have on hand for the last few years. These statements must be as accurate as possible. If you are halfway through a financial year, gather the previous year's complete statements and the business' year-to-date figures. Ensuring your business is well presented on paper is the first step towards attracting the correct type of acquirer. Having a budget for the coming year will also aid the acquirer's decision. Ensuring any discrepancies are resolved will prepare you to answer tough questions and show your commitment to completing a transaction. An M&A professional can help you ensure that your financial documents are in the best shape for the complex due diligence process.

Tax Implications

Taxes will vary depending on the length of ownership, business type, and the deal structure. Getting the help of a professional advisor can substantially reduce tax costs following the sale of your business. And you'll want to consider personal and family tax positions and your company's. You will need to have the following documents in order before a merger or acquisition:

• HMRC tax returns
• Three years' profit and loss statements
• Real estate documents, leases, and any lease-related documents
• Equipment leases
• Comprehensive list of inventory, fixtures, and equipment
• Paperwork for loans (amounts and payment schedule)
• Any franchise agreements
• The names of any external advisors

SWOT Analysis 

It can be beneficial to assess your Strengths, Weaknesses, Opportunities, and Threats (SWOT) to understand where your company stands in the current market, how it measures up to the competition, and how to maximize its strengths. A complete understanding of your SWOT profile can help you position your company to buyers in the best light possible. 

A SWOT analysis can also help you identify any areas of your business operations that could be cleaned up. This includes issues such as redundancies or costs that do not add value to the business. You should be able to justify everyone on your payroll and whether outsourcing may be more cost-effective. Consider if you could spend money more smartly on equipment. Think about outdated inventory and any property that you do not need. Reallocating resources can help you optimize your company's financial health.

Profits and Growth

Preparing for sale includes increasing your net revenues and profits, keeping in mind that buyers will focus on EBITDA (earnings before interest, taxes, depreciation, and amortization) for valuation. The higher your EBITDA number is, the higher your ultimate sale price will be. Your business's growth potential will also be significant to buyers, so you should focus on growing sales, even if it means hiring more talent.

Protecting What's Yours

Intellectual property (IP) can be a company's most important asset because it separates you from the competition, is an important marketing tool, and can provide revenue through licensing agreements. It is also a significant driver of value in a merger or acquisition. You should ensure that any intellectual property that belongs to your business (proprietary technologies, copyrights, patents, design rights, and trademarks) is legally protected. If you are considering a cross-border deal, you must ensure the IP is protected internationally and locally. 

Cash Flow

A key driver of most acquisitions is cash flow. Cash flow is not the same as profit. Most buyers will look closely at your profit and loss statements, tax returns, and owner compensation, considering excess compensation to shareholders and employees. They will also look at sizable, one-off expenses, such as investments in systems, and non-cash items, such as amortization and depreciation.

Know Your Number

You mustbase your business's worth on something other than some arbitrary number that is based on any due diligence. An accurate valuation of your business will help you differentiate between a fair sale and a bad deal. Your company valuation will include a company analysis and a market analysis. It would help if you enlisted the guidance of an M&A expert to determine your company's value most accurately. 

Have a Post-Sale Plan

It would help if you thought about what your world will look like after the sale of your company. This includes factors such as:

• Your finances and investments 
• How much cash you will take at closing 
• How long an earn-out period should be
• Any stock options 
• Tax liabilities
• How much will be paid at once and how much will be deferred, if any
  

Don't Forget

Selling a company is an incredible undertaking, and there is quite a bit you will need to account for. Some other factors to consider:

• Resolve any shareholder issues before you take your business to market 
• Eliminate any surprises and make sure there are no skeletons in the closet
• Pay off any debt
• Maximize up-front cash and generate a competitive atmosphere to create leverage 
• Have a solid exit plan and invest as early as possible to all retirement accounts, and maximize annual contributions to all possible investment accounts
• Form a succession plan if you are going to turn the company over to family or an employee
• Make sure you have the suitable types and amounts of insurance, including health insurance

Let's Talk

At Benchmark International, our award-winning team of M&A analysts is ready to help you with practical strategies for the exit or sale of your business. Even if you're not sure about selling now, starting the conversation about planning for the future is never too soon. We look forward to getting to know you.