Preparing Your Business For Sale – The Ultimate Guide
Always be preparing
The first bit of advice we can give is to always be preparing your business for a sale. That means from day one you take into account everything in this article and you make sure you’re dotting all the ‘i’s and crossing all the ‘t’s.
Even if your plan is to sell your business in five years, or 10, the earlier you start your preparations, the easier the process will be, and the more appreciative potential buyers will be of your efforts.
This one comes first because it’s by far the most important thing to take care of. Please, please get your accounts in order. This point cannot be overstated.
Buyers want to see how healthy your company is in regards to its finances, and the more complete and robust your reports are - reports that, critically, include monthly management accounts - the happier they’ll be and the faster they’ll understand your situation.
Nothing puts a buyer off more than a company with poor financial records.
Ben Mekie from Acuity Associates (Providers of interim Financial Directors and Financial Controllers) lists some of the requirements any buyers of your business will have.
"Buyers are looking for a comprehensive understanding of the business to mitigate the risk of buying it. The clearer the picture the easier it is for them to make a quick decision without looking to chip away at their offer price. Even though you may understand your business’ numbers intuitively - and have lived with them for the duration of the business - it is not necessarily so clear to a third party – who you are in negotiation with!
Here are some pointers of what a buyer will require to fully understand and be comfortable with your business:
- Up to 24 months of Monthly Management Accounts demonstrating a smooth growth and/or consistency through two years of revenue cycle (if your business has seasonal sales peaks for example).
- An integrated monthly P&L (profit and loss), BS (balance sheet) and Cashflow forecast model. The buyer will want to see what will happen to the business after they acquire it under different assumptions. So the model needs to be assumption-led and show what the future profits, cashflow and Balance Sheets look like 3-5 years ahead under different assumptions on activity.
- Customer analysis, revenue breakdown and margin analysis for last 3 years.
- Supplier agreements, customer agreements and contracts.
- Product analysis including strong performing products / services.
- Any capacity limitations.
- Capex analysis (what fixed assets do you have and how do they relate to the successful operation of your business).
- Statutory Accounts reconciliations. Do your management accounts tie into the Statutory Accounts filed at Companies House?
- Breakdowns of Working Capital requirements.
- Summary of “out of the ordinary” practices. Buyers don’t like surprises so it is better to reveal in a controlled manner any items that might surprise their due diligence team.
- Employee breakdown, employment contracts.
I hope this give a good flavour of what is required."
This article originally appeared as part of the Ultimate Guide on www.Converge.today in August 2020. Other articles from the guide can be found via the links below:
- Preparing Your Business For Sale
- Growing Your Business For Sale
- Timing Your Business Sale
- Valuing Your Business
- Finding a Buyer
- Preparing for Due Diligence
- Negotiating a Deal
- Dealing with Black Swan Events