Grooming a business for sale

Selling your business can be the single largest and most profitable transaction of your career. Grooming your business for sale helps make your business as attractive as possible to potential purchasers. The right approach can significantly increase the value of your business and help make the sale process easier.

Your business exit strategy

The earlier you can start planning your business exit, the more time you have to groom the business. Ideally, you should start several years before the planned sale. Planning in advance gives you more opportunities and can allow you to pick the most favourable time to offer the business for sale.

As well as giving you time to get the business into shape, a long lead time maximises tax-planning opportunities such as making payments into your personal pension. You will also want to ensure that the business qualifies for entrepreneurs’ relief on capital gains tax (CGT) unless you have already used your lifetime allowance.

As part of the process, you may want to involve other shareholders, key employees and important customers and suppliers. They all have the potential to be major obstacles if they don’t agree with your plans.

Increasing your business’ value

In many business sales, owners are disappointed by low valuations. Understanding how purchasers value businesses may not overcome this, but can help boost the likely value.

Buyers tend to be interested in focused businesses with a clear business plan that fits in with their own strategic objectives. You might want to dispose of non-core and underperforming areas of business – or alternatively to build the business up to attract buyers looking for a significant presence in your market.

Steadily growing earnings over a period of years are more attractive than volatile profits. Tight control of working capital and attention to key accounting ratios can also pay off. You may want to consider options such as focusing on short-term profitability rather than making long-term investments, or selling off underperforming assets. A good accountant should be able to advise you.

There may also be options for increasing the stated value of your business assets. For example, you might want to have the value of freehold premises restated, or commission a formal valuation of intellectual property assets.

Reducing business risk

The other substantial opportunity to improve the value of your business is to reduce the risks for the purchaser. For example, if your business relies too heavily on a handful of customers, you might focus on building your customer base. Putting in place effective management systems helps you demonstrate that the business is well run and provides quick, accurate information to potential purchasers.

General ‘tidying up’ can substantially reduce buyer risk. Ensure that appropriate contracts are in place with customers, suppliers and key employees. Separate out any overlap between personal and business assets, and codify any informal arrangements. Make sure that you are up to date with maintenance of equipment and premises. Resolve any outstanding disputes. Steps like these will help give buyers confidence, reducing the risk of a discount applied to the value of your business