The average time a small business remains on the market is 6-8 months (though this can change dramatically depending on what’s on offer and different deal structures) but any expert will tell you that preparing to sell a business should be a process that takes years rather than months.
However, whatever situation you are in, it’s vital that you don’t let your emotions take over: acting too hastily or hanging on too long can have a seriously negative impact on your final sale price.
Andrew Weaver, CEO at Lawyer Fair agrees,
‘Business owners often under estimate the time required to sell their business and remember, we're not talking about just sticking it up on BusinessesForSale.com and hoping for the best - we're talking about preparing the business properly before going to market, and then ensuring you get the right buyer, with the right incentives to complete.’
Indeed, it’s worth assuming that from the day you get the keys for your new business, you should be thinking about making it into a really saleable commodity.
Whatever you do, don’t wait until you’re ready to retire or the day-to-day running of the business has become too much. It’s a dispassionate market out there, and if you have let your business go a little under the burden of illness or advancing years, you will simply be attracting the attention of ruthless buyers.
And remember – a business that is fit to sell is not only a draw to potential buyers; the actual process of making it saleable is an excellent way to run a business.
So, even if selling is not on the cards right now, if you keep the following checklist at the heart of your business practices, you will have a ready to go and water tight exit strategy:
Make yourself dispensable
Yes – that’s right. You may feel that your business would be nothing without you – but do you want a buyer to think the same?
Before you think about going on the market, make sure you document anything you think will help the new owner. They will want to take up the reins quickly and smoothly so it’s vital that you can show that the business can run well without your specific input.
This means having a strong team, clear and efficient business procedures, good lines of communication (between existing staff and with customers), successful marketing strategies and a solid business model that can accommodate a new owner. Weaver puts it succinctly:
‘Buyers don't want to pay for a business where the value departs when you do.’ - Andrew Weaver, CEO at Lawyer Fair
Get your books in order
You want your business to be as attractive as possible when buyers emerge so ensure any overdue contracts are signed, employee disputes settled and new leases agreed.
‘Trying to solve problems when a buyer is interested is likely to cause concern with the buyer and/or delay with the deal. Time kills deals. Do some up front due diligence and clear out any skeletons.’ Says Weaver
On a broader level, streamlining your financials is something you should look at way before going to market. Make sure you apply a critical eye to all outgoing expenses and determine actual value versus cost.
Continue to keep your records up to date, and don’t let things slide in the final year or months of your tenure.
And when you are getting close to selling it’s worth getting an audit for the past few years. This might cost a bit, but will be invaluable in reassuring any buyers that you have a decent profit history.
Maung Aye, a partner at law firm Mackerell Turner Garrett, who specialises in business acquisitions, also advocates ensuring that the vital elements of your business are still on offer to any buyer:
‘You need to ensure that your company has protected its valuable assets – for example, a company which has a trademark or patent protecting a vitally important piece of intellectual property is going to be far more valuable than a company who has no protection at all.’
Stand out from the crowd
What you should be asking yourself is ‘Why would someone buy my business?’ You need to be able to differentiate it from all other similar business and ensure its stands out if it is going to be noticed.
‘You should think about what is unique about your business that would make a buyer really want to purchase it. It may have created a valuable piece of intellectual property or be a recognised leader in its field. This is the best way to ensure you get a top price for your business.’ says Aye
Some would even go as far to say that you ought to specialise to a niche before you sell. Consider cutting some products or services that are superfluous to the nature of your business. Making your business really good at one thing or being king of a certain corner of the market is the key to a successful USP.
Understand what deal structure works best for you
Getting to grips with potential deal structures is worth doing early on in your sale preparations. In doing so, you will reveal aspects of your business that may need some attention or development:
‘It's impossible to predict in advance of going to market exactly what your buyer will look like, let alone the nuanced terms of your deal but, you need to understand the tax implications of different deal structures so you're negotiating from a position of knowledge.’ - Andrew Weaver, CEO at Lawyer Fair
Firstly, you need to be very clear about what you will be selling – i.e. your business or its assets? It’s an important distinction as If your buyer purchases the business in its entirety, they inherit it warts and all – the assets as well as the liabilities. In this case they’ll want to alleviate risk as much as they can by undertaking their own due diligence process.
In terms of tax liability, sellers may pay less tax on profits from the sale of the business as a whole, rather than from an asset sale so it’s vital to get professional advice from the start to make sure your best interests are served.
You will also need to consider staffing issues. Under UK law (TUPE) the current owners’ obligations to existing employees may have to be inherited by the new owner so cultivating hard working and amenable staff will alleviate any buyer concerns in this area.
Other issues up for discussion are the handover period (do you want to cut the cord immediately or stay for a transition period?) and payment options including cash completion or a settlement of shares in the new company.
And make sure you are aware of alternative funding options for the sale of your business: if you are in a tight spot or need a deal fast this may enable you to get a better price or secure an agreement that may otherwise have been hard to get. You could finance the deal yourself and offer your buyer the agreed price with an interest payment schedule or offer the deal in deferred payments which will enable the buyer to raise finance over a longer period than usual.
Get third party consent
Finally (and this really is the last stage of preparations!) don't get into a position where completion of your deal is reliant on landlord or supplier approval.
Make sure you have these areas covered before you go on the market. If you are running around at the last minute trying to secure consent for the transition, you could waste valuable time and cause the deal to fracture and/or an unscrupulous third party to extract some incentive for agreeing to help.
It’s pretty clear that prescience is key in preparing a business for sale. As Andrew Weaver says,
‘The length of time it takes to sell does depend a little on your sector but expect it to take no less than 6 months and probably best to allow 9-12 months from the launch of your sale campaign to completion. Add to that the time required for preparation and you'll see why you need to plan your exit carefully and in good time. A well prepared exit strategy can have a massive impact on the terms of your sale.’
So, ask yourself – are you really ready to sell?