The day I tried to sell my first company was the day I realized it wasn’t ready to sell.  Since then, I’ve seen it’s an issue in a high proportion of SME businesses.

There is a relatively simple (to write) list of considerations when preparing a business for sale.  Easy to say, but sometimes quite a lot of work to do.

Here are some items that often come up:

1. Profitability: A company is best to be profitable, unless you’re a tech unicorn looking at billions in imaginary future profits.  Most businesses need decent existing profitability to be saleable.  Some buyers specialize in buying businesses in trouble and turning them round, but the sale price in this case is usually low.
   
2. The team that stays: The seller should have a good team in place before they leave, or they can consider staying on. If staying it can be quite invigorating to work alongside new business partners, with perhaps complementary skills or new capital to invest.  Some owners wouldn’t like that, or are just ready to retire or go travelling, so this needs to be adapted to your situation. In many cases an earn-out is a popular way of retaining owner support through the transition. If you’re leaving the business needs to be functional without you, so recruiting and embedding a new senior team is best done in advance of the sale.
   
3. Growth: A growing business tends to be more appealing and valuable. It is hard to buy a business that is fading away. Maybe you’re just ready to step out and leave this to a turn-round specialist?  The sale price is likely to reflect this.
   
4. Sound financials: Every business has a few skeletons in the closet, but the process of due diligence will usually flush them out.  Producing regular management accounts and meaningful cashflow management is important both for day-to-day operations, and for a prospective buyer to see.
   
5. Automation:  A business works so much better when it’s a repeatable system that your employees can do without you.  In reality a lot of the intelligence is wrapped up an owner’s head, and when they leave they take it with them. Where possible automating systems first can be great addition to the value of a business.
   
6. Digital Presence:  There are still many companies who haven’t nailed their digital presence, and still acquire all their work through pre-digital channels.  It usually adds value, both to operations or to a disposal, if there’s a strong digital and social presence.  Have you used Ecommerce as a Channel?  Could / should you?  If I was to “Google” you, would I find your competitors first?  This is quite easy to fix without a massive investment, but if digital is not in your comfort zone then perhaps bringing in some help would make it easier?
   
7. Documentation:  What does everyone in your team do?  If they left, who or what would we need to replace them?  Most smaller businesses haven’t documented their processes, but is a positive for a buyer if they do.
   
8. Data Room: All the key business data, forms, ownership, financials, in one place ready for the buyer to do their due diligence.  Again most businesses don’t have this, but its great for a potential buyer.  Our checklist of things to include in the Data Room provides a valuable guide.
   
9. Identifying buyers:  A good business exit may begin well in advance, with buyers identified. They can be asked “what do you need this business to be like in order to buy”.  A sophisticated buyer will often have a ready answer for this, leaving the owner clear criteria to work through.
   
10. Risk: Identifying and mitigating the major risks is an important skill in business. Having done this it will be of interest to a purchaser – and it will be of interest if you haven’t.  One of the risks you will cover is “owner leaving”, or “key people leaving”. Other risks may be industry specific.
    
11. Scale: There is usually less interest in smaller businesses. When you reach a critical size there’s no end of would be purchasers. Merger and Agglomeration strategies get over this and package a small business for a great exit, but these usually need time and direction to reach the point of value. The lesson is, plan early!
    

Preparing a business for sale

You should address all of the above points early, in order to prepare for a good sale.  Often owners are busy with the day to day so this doesn’t happen. Bringing someone in to help can make a lot of difference.   If don’t do these they will likely be the priority for a new owner to increase value of their asset.

Valuation and Audit

Ask us about our business sale valuation and audit service, a one day visit and report which will give you a current valuation and actions required to increase it.

We help owners who are ready to sell, or who want support getting to a good sale.  Let us know if you’d like a no-commitment conversation about it.