When it comes to selling your business, knowledge is not only power, at some point it will need to be shared. One way or another, whether it be early in the marketing phase of the sale process, or towards the latter stages during due diligence, the chances are you’re going to need to disclose your knowledge to the buyer, whether it be good or bad.
The following are areas in which businesses tend to differentiate themselves from being “sale ready”:
1. Knowing your profit margin by product/service
A buyer of your business will need to know your profit margins by products/services so they can devise a strategy to maximise the return on their investment. In turn, it also gives them the ammunition they may need to justify paying you a higher price for your business.
2. Preparing annual accounts promptly after year end
It’s often worth aligning the launch of a business sale with the release of up-to-date annual accounts. Basic stuff, but it’s surprising how the impatience of some business owners will force their advisors to go ahead with a sale process without up-to-date accounts. Baffled buyers will tend to question the seriousness of the sellers and walk away pretty quickly.
3. Preparing management accounts regularly and accurately
Another basic but crucial point. Turning around reliable management information quickly after each month end or quarter end demonstrates good working practices, and reassures the buyer that you’re on top of the numbers.
4. Having financial forecasts prepared for at least the next 12 months with supporting assumptions
If you’re confident your profitability is going to grow in the next few years, don’t leave it to chance that a buyer will pick up on this, quantify it and then factor it into the sale price. Document it with financial forecasts broken down on a monthly basis and by using an integrated Profit & Loss, Cash Flow and Balance Sheet. Then back this up with robust written assumptions.
In a business sale last year, we added more than a million pounds to the sale price by doing just this. It’s hard work, but the investment is well worth it.
If you’re interested in selling your business, you can get in touch or read further blogs in our Business Sale Readiness Factors series on our website. You can also complete our free online ‘Sale Readiness’ diagnostic tool (www.larking-gowen.co.uk/sales-diagnostic). It takes five minutes to complete and your results will highlight the top three factors which are working well and the top three factors which require the most attention before you consider a business sale process.
James Lay – James.Lay@larking-gowen.co.uk
This article is designed for the information of readers. Whilst every effort is made to ensure accuracy, information contained in this article may not be comprehensive and recipients should not act upon it without seeking professional advice.