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Timing a business sale

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Taxation and law are complex subjects and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.

When is the best time to sell your business? Most owners answer is when they can achieve the highest price. This really means when the business is most attractive to a buyer. There are a few factors which usually arise. Most sellers will be best advised to spend some time “pumping iron” and getting their business “gym fit” before trying to sell.

Involvement of the owner

Buyers usually want businesses which “run themselves”. If you, as the owner, are heavily involved in running the business then you are more likely looking at an earn out which will be less attractive for you. This will mean little money up front and you staying with the company for several years whilst the sale price is paid to you. If you can have one or more senior managers who run all the day to day operations for you with you having a general overview this is much better. It will be best to spend the next 2 years getting this structure in place and selling then. The senior managers need to be contractually locked in and incentivised.

Think about how you are going to step back from day to day management issues and let others run things.

Financials

Up to date accounts and management information showing no debt in the business or any debt under control is essential. You need to be able to show your customers are paying on time and aged debts are being chased. It will be better waiting until all the financials are under control and your accounts look better before selling.

Staff

Most owners do not like Human Resource issues. However almost all business problems can be traced back to problems with staff. If you cannot get problem people sorted out bring in an external HR adviser to crack it. You may have to wait until a problem staff member goes and you have someone better before you sell. This is often the biggest problem in selling. Implementing proper employment contracts, a staff manual with written procedures, a software package for monitoring holidays and sickness are all very good moves. It is time consuming and will meet staff resistance but persistence pays off. Getting these basics right is more important than share options schemes and other incentives.

Premises

Is your business which depends on its location and premises or is it a business which could easily be absorbed into another company’s premises. This is a key issue. If your premises do not matter look at selling towards the end of your lease. If your premises matter secure a lease renewal before you sell.

Equipment

Leases of computer equipment should be reviewed. If the buyer does not need the software you use you do not want to be signed up to pay for it for another few years. If however you have bespoke software which the buyer will need make sure you own it and can sell it. Software licences are often overlooked and you may need the software company’s permission for another company to use the software. Best sort this out before you try to sell.

Your strategy

Having a clear strategy is important. This could be a new product line you are going into or selling more online or managing your business better with new software. Buyers who can see that you are improving and they can emulate you will help with a sale. Revamping your webpage is a good idea. You do not need to spend lots on this just make sure it is up to date and projects the right image of your business.

Get buyers coming to you

The best way to sell is for a buyer to contact you. Before putting your business on with a business transfer agent think about publicity such as “best local employer”, trade quality awards and e-commerce awards. Publicity which makes your company stand out is very helpful. As an example adopting ethical or ecological methods is a good way to get free favourable press comment. Many business owners do not think they have time for this but it gets attention for acquisitions within your trade.

February 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser