Selling the business that you have put your heart and soul into may be the last thing on your mind or you may be desperate to get out and enjoy the fruits of your hard work.
Even if you are the former, a buyer may come along with an offer that’s too good to refuse or a life-changing event may strike, forcing you to focus your energies elsewhere, so many business advisers recommend including your exit strategy in your business plan. Accordingly, we explore the things you really must know if you are selling your business.
How to get sale ready
Start spending time working on your business, not in your business. Step back from running it to refocus on getting it ready for sale. Business valuation techniques is a subject for another article but, briefly, in putting a price on it you should be considering the following:
- is your customer base loyal and growing?
- are your profits steady and rising?
- Is your market position one that would appeal to buyers?
- how much potential to expand is there?
To get the business ready for sale you should be:
- making sure records, contracts and other documents are accessible, covering at least the last two to three years;
- ensuring your accounts are up to date;
- sorting out any disputes or problems the company is facing;
- Find out if Tupe applies. The Transfer of Undertakings (Protection of Employment) regulations protect employees’ rights under a new owner.
You will need a brochure in print and online versions containing key information, financial data and professionally taken pictures of the business.
Buyers aren’t managers
This key point is often overlooked. Most buyers will not want to step into your shoes. They are buying a company, they are not buying your job. Make sure the business can run without you. To achieve this you must delegate. Trust your staff and give them more and more responsibility with support when needed and be tolerant if they slip up.
Once you are satisfied everything is in place, this is the perfect opportunity to leave your work phone on your desk and take a long holiday. If all is well on return, your business is sale-ready.
This is where sole traders are at a major disadvantage. The main value of the business may be you, and the loyalty of your customers is difficult to price. Similarly, deals you have got with suppliers or on loans or leases are unlikely to be offered to the incoming owner who has not built up a relationship with those third parties. You may end up being offered little more than the value of your assets and unexpired contracts or leases if transferable.
For more information about finding a buyer please see our article How To Sell Your Business: Finding A Buyer
Voluntary and involuntary sales
It may turn out that you are forced to sell the business. Therefore, it is worth developing two sales strategies: one for a voluntary sale and one for when you have to sell. When the sale is voluntary, your planning should be informed by:
- when you want to sell; whether at a certain age or once revenues reach a certain level;
- who you want to take over the business;
- how much money you want to take out of the business;
- what you should do if approached by a potential buyer.
If a sale is forced upon you, the strategy should cover what to do if:
- you fall ill and can’t work or can only work part-time;
- the company starts to fail – what assets and staff is it important to hang on to and which should you offload;
- you have had enough and want to do something else with your life. Do you appoint a manager, sell up or just grit your teeth and wait until retirement age?
As a general rule it makes sense for the basic plan to be for leaving the business involuntarily and then adjusted for a voluntary exit. This is because both scenarios have an number of factors in common. In both situations you will need to:
- make sure there are trained people who can run the business in your absence. This is attractive to buyers who in many cases will not want to undertake day-to-day activities;
- know what assets to sell and which staff to let go of. This will help if trading hits a bad patch and the knowledge is useful to buyers who often come in looking to cut costs to increase profitability and repay the cost of the purchase;
- identify the assets that can be sold quickly. This is useful if revenues fall and also helps a new owner reduce costs and increase profitability.
Debts and contracts
No one wants your debts. Try to pay them down and also so far as possible do not sign new contracts as you may have to pay out the full value of the contract on sale without receiving the benefit of it.
What to do next
Getting ready to sell a business without professional help can be a daunting task. This article only touches on the many issues involved and anyone seriously considering selling their business will need bespoke professional help.
The friendly team at Finsbury Robinson will be able to deal with all your questions and give you advice tailored to your individual business. If you want help with devising an exit strategy or with selling your business, please call us on 0208858 4303 or email us at info@finsburyrobinson.co.uk
Angus Walker 2nd August 2024
