Our top tips when deciding to sell your business
This month we are sharing with you 5 of our top tips to consider when deciding to sell your business. The importance of a valuation, your accounts, presenting your business, succession planning and gathering the necessary documents form 5 of our top tips.
Your expectations about the value of a business can be quite different from the achievable price. If this is the case and you are not willing to accept an expert’s view, you may be wasting your time.
Property agents or valuers will typically provide two different types of valuation:
A free marketing value: This involves a quick meeting with the agent who will research and find a marketing guide price in order to inform you verbally or by letter what the value of your business will most likely be. Although this value is just an estimated price so can often be higher than the actual value and is not necessarily achievable. It is important to consider this before committing and putting your business on the market.
A formal “red book” valuation involves a lot more detail and expertise. The RICS imposes regulations including:
- A full report
- A reasoned valuation – which is the view of what the valuer thinks the business can achieve
- Comparable sales evidence – to provide a greater analysis of the market for similar businesses
This valuation can be costly depending on the complexity of the business being valued. However, you will receive a full report that can be used in the sales process and can assist negotiations.
Further information can be found on the RICS website.
2. Get your accounts in order
Businesses are valued by using a multiplier of net profit, so it is essential that your accounts are up to date, and that any more recent management accounts can be verified.
During the life of your business, it may have been strategically correct to minimise the profit levels within your accounts. However, this works against you when you are planning on selling your business. We would advise for two years before thinking of selling to make sure that the maximum profit levels are being reported within the accounts. This may mean dropping some staff that have been useful but not essential. Or if you have taken more time off over the last year to enjoy another activity, it may be time to get more involved in the business.
Normally the first thing that is asked for when a business is presented to the market are the accounts. If the buyer is looking for finance, the accounts will be used by the valuer to assess the market value. The more complications in the accounts, the less confidence the valuer will have.
If you explain the situation to your accountant, they should be able to assist in the process. If your business is within a specialist sector, I would advise a specialist accountant.
3. Presenting your business
The key is to present the business in the most favourable light to prospective buyers. The result of your actions may not have time to show in the accounts, but you can show the potential for growth going forward.
A GP or dental practice may have space for another surgery room that is currently used for storage, clear it out and make it easy for a buyer to picture a surgery there.
If your restaurant has a space that could be used for private dining, make it look as though it is feasible.
If your Skittle alley hasn’t been used for a year, start using it.
Decorate. If buyers perceive that you have not maintained the property, they will be put off by potential problems in the future.
4. Succession planning
As an owner manager you will have to demonstrate that the business runs smoothly without you. So, any buyer will want to see that they can step in on day one and to continue running the business.
Your accounts and ordering system needs to be easy to understand and process, so if your current system is confusing or those around you are struggling to pick it up you should consider making some changes.
The easier that it seems for a buyer to “step into your shoes” the more they are likely to want your business.
5. Gather necessary documents
Potential buyers will need to know specifics about your business as part of due diligence when buying.
You will also need to provide:
- A certified copy of the lease if you trade from a premises or title deeds if you own the freehold.
- At least two years of certified accounts and up to date management accounts.
- A list of staff job roles, pay rates, shift patterns and length of service for TUPE regulations.
- Any licences, consents or certificates that allow your business to trade as it does.
- A list of current customers with volume sales
- A list of suppliers, including any special supply agreement.
You need to be ready with a fully prepared solicitor to act for you.
The above are 5 of our top tips when deciding to sell your business. This is how we at JS Reakes support our clients with Business Sales.