Selling a business is one of the most significant financial decisions a business owner can make. It’s not just about setting the right price; it’s a multifaceted process that requires careful planning, strategy, and execution.
Whether you’re looking to retire, start a new venture, or simply cash out on years of hard work, preparing for a sale and maximising the value of your business is crucial. Below we look at some golden rules to guide you through this complex process, including the critical role a corporate finance advisor will play.
Start Preparing Early
The process of selling a business should begin well before you actually list for sale. A common mistake owners make is waiting until they’re ready to sell to start preparing. Ideally, you should start planning at least two years in advance. This allows you time to optimise your business operations, streamline finances, and ensure that all legal and regulatory matters are in order.
You might already have been approached by an attractive acquirer or have a potential buyer in mind. If so, great. But preparation is still very important, whether you are going out into the market to approach suitable buyers or not.
Early preparation includes:
- Organising your financial records: Potential buyers will want a transparent view of your financial history. Ensure that your accounts are up-to-date, accurate and demonstrate profitability.
- Addressing operational inefficiencies: Any inconsistencies in your operations can be red flags for buyers. Ensure your business processes are efficient and well-documented.
- Mitigating risks: Evaluate potential risks in your business model and develop strategies to mitigate them. This could include diversifying your client base or solidifying supplier agreements.
Boosting Business Value
The value of your business is not just based on current profitability but also on its potential for future growth. Buyers are looking for businesses that are scalable, have a competitive edge and possess a loyal customer/client base.
Ways to enhance value include:
- Increase revenue streams: Diversifying your products or services can make your business more attractive. If you rely heavily on one product or a few key clients, it’s time to expand.
- Strengthen brand and market position: A strong brand reputation and a loyal customer base can significantly increase business value. Invest in marketing and customer relationship management.
- Establish a strong management team: A business that can operate independently of the owner is more appealing. Make sure your management team is capable and experienced.
- Clean up the balance sheet: Reduce unnecessary expenses and liabilities. The cleaner and more straightforward your financials are, the more attractive your business will be.
Understand the Market and Timing
Market conditions significantly influence the success of your sale. Selling in a booming market can yield a higher price, while in a downturn, you might need to temper your expectations. Keep a pulse on industry trends, the economic conditions and potential changes in regulations that could impact your business value.
Additionally, consider the timing in relation to your business cycle. Selling at a high point in revenue and profit trends can result in a more favorable valuation.
Be Prepared for Due Diligence
Due diligence is one area where a stitch in time really can save nine.
The due diligence process can be intense, as buyers will want to thoroughly inspect your business. Be ready with detailed records, contracts, and disclosures. A well-organised and transparent due diligence process not only speeds up the sale but also builds buyer confidence.
We would always recommend getting your house in order and doing as much internal due diligence as possible before letting any potential buyers start doing their own digging.
It’s generally a good idea to be transparent about any due diligence issues uncovered but if we know about potential issues in good time, we may be able to help you resolve them or at least present them in as benign and non-threatening a way as possible.
Assemble a Strong Advisory Team
Beyond a corporate finance advisor, you’ll need a team that includes an accountant, a legal representative and a tax advisor. Each brings specialised expertise that can help navigate the complexities of the sale process, from legal considerations to tax implications.
The Importance of a corporate finance advisor
A business sale is one of the most significant financial transactions you are likely to make. It can be complex, involved and challenging. A corporate finance adviser can take the strain, ensure the process is as seamless as possible and give you confidence that the best outcome will be achieved.
Your chosen corporate finance specialists should ideally be involved well in advance of any transaction. Not only will this allow for better positioning to derive maximum value, but experts in this area will consider who to transact with and how a structured approach could work without exposing either party to an undue level of risk.
An experienced advisor can make a substantial difference whilst also protecting shareholders, management teams and the related funders.
Also, when it comes to due diligence, a corporate finance specialist will help to explain what it truly is and what constitutes key information. This will be undertaken with confidentiality, commercial sensitivity, and the capacity of all stakeholders being handled efficiently.
Key roles a CFA can play include:
- Valuation and Pricing Strategy: An advisor will assess the business’s value using various financial models and market comparisons, helping to set an optimal sale price that maximises value while attracting potential buyers.
- Buyer Identification and Screening: They identify, approach, and vet potential buyers, ensuring the right fit in terms of financial capability, industry alignment, and strategic goals.
- Negotiation Support: An advisor can help manage negotiations, ensuring terms of sale (such as price, payment structure, and other conditions) are favourable and protect the seller’s interests.
- Due Diligence Management: They coordinate the due diligence process, working closely with accountants, lawyers, and other stakeholders to ensure all financial, legal, and operational information is properly disclosed and validated.
- Deal Structuring and Closing: The advisor helps structure the transaction, optimising tax implications, payment terms, and closing details, and ensuring the deal progresses smoothly to completion.
How Inicio Corporate Finance could help
At Inicio Corporate Finance, our expert team leverages decades of UK and global experience through our looped international relationships and M&A network. With strong relationships across Europe, Asia, North and South America, we offer a global perspective tailored to meet the unique needs of SMEs.
At the core of what we do is building long-term, trusted relationships.
We act as strategic partners, guiding companies through the intricate processes involved in achieving their financial goals.
We do not issue engagement terms until we completely understand your objectives, and we are confident that we can help and add value. This can take weeks, months, and in some cases, years.
To find out more please contact Scott Taylor at [email protected] or Kenny Hughes at [email protected]
