Why is it so important to prepare your business for sale? Well, demonstrating streamlined operations, and real usable data about your clients and revenue sources, will put you in a stronger position and can enhance its value.
If it can demonstrate stability, growth potential and reduced risk, acquirers can make informed decisions as to whether it will be of interest or not. These points should all be considered:
- Faster sale process: A well-prepared business where records and information are clear, well-presented and transparent will reduce the time needed to close the deal, minimise uncertainties and expense going back and forth with lawyers.
- Reducing risk: A business that is well-prepared, that has addressed potential issues or risks, makes for a much less risky investment and a much higher likelihood of successfully closing the sale and maximising value.
- Improving business performance: The process of preparing your business for sale can reveal areas for improvement; even if you are not yet ready it will put you in a better position.
- Legal and financial compliance: Ensuring that all legal and financial matters are in order reduces the risk of potential liabilities.
- Negotiation position: When a business is well-prepared, you can negotiate from a position of strength, and justify your asking price.
- Smooth transition: A well-prepared business makes for a smoother transition for the new owner. Proper documentation and procedures, and employees who have been invested in the process to facilitate the handover process.
- Maintaining confidentiality: Having the business prepared beforehand allows for better control over the information shared during the sale process. This helps maintain confidentiality.
- How and when to inform my staff? You will want to look after your loyal staff. buyers want to retain good people and this helps to maintain the client relationships. It makes sense to involve key staff early in the process. Also, consider working with HR professionals who can advise with TUPE or redundancy should it be required.
- What about my premises? If you currently occupy an existing building on either a Freehold or Leasehold basis, then it may be possible to negotiate this into the sale if the two parties can come to an arrangement.
- What will my practice be worth? Practices are typically valued using a multiple of the GRF – gross recurring fees – annual recurring turnover generated from clients. One-off consulting fees may also have a value but less so, as they are not certain.
If your business is larger, its value will be on an EBITA basis or adjusted profits, taking into account the salaries or drawings taken by partners etc.
Factors that can affect the valuation will also include things like the overall margin. While a high margin might sound great it can mean the business is underinvested.
The potential to increase margin with improvements is more attractive. The historical and growth forecast of the business is also a factor. Client relationships, especially with larger ones, are key.
Buyers will consider your staff turnover and retention, as well as the qualifications, expertise, lengths of service and any keyman risks they may be taking on.
Properly preparing your business for sale in advance will help ensure a successful transition that benefits everyone.
You will also need to consider working with specialist partners, including former accountants who have sold their own practices, HR and legal professionals who can help you when the time is right. It is never too early to start planning!
Simon Read, Accountants for Sale
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