Selling your business is an opportunity to extract the fruits of your labours, with many entrepreneurs viewing a sale as the ultimate sign of success.
Several factors influence the decision to sell. For example, the Financial Times reported that UK business closures overtook openings in 2022, indicating economic challenges. Entrepreneurs reflect these concerns at every level on the pyramid.
According to one survey, one in five SME owners planned to sell part or all of their businesses within the next two years. Regardless of your stance, if selling up and cashing in is on your mind, you must know how to prepare to sell your business. Let’s explore what it takes to prepare your business to sell.
How do you know if you are ready to sell your business?
Did you know that entrepreneurs made £11.58 billion selling their firms over the last year?
Deciding to sell is challenging, especially if you’ve grown your firm from an idea into a roaring success. Nothing is more complex than letting go of something you built, but it could be the best decision for your future.
If you recognise any of these signs, you could be ready to sell your business:
- Your business makes enormous profits.
- Someone has already made an offer to buy your business.
- Your business has outgrown you.
- You’re tired, stressed and burned out.
- Market trends are changing for the worse.
- Your life circumstances have changed.
- You are thinking about retirement.
Business exit plans also come into play. Approximately 51% of business owners have an exit plan, and your exit strategy could have already been triggered. This is more common than you think.
Ultimately, whatever your plans, only you can decide. It requires self-reflection and assessing the situation.
Do you need a solicitor to help prepare for the sale of your business?
Buying and selling businesses is a complex legal minefield. Attempting to sell your business without the support of a solicitor is foolish unless you have a legal background in this area yourself.
Solicitors manage everything from the sales agreement to due diligence and help you avoid costly missteps.
How to prepare to sell your business
Preparing to sell your business means following a defined process. Laying the groundwork increases your chances of a successful sale, prevents delays and guarantees you sell for what your business is worth.
Cover all the in-house bases
Like selling a house, you must make your business as attractive as possible before listing your business on the market. Here are some steps to take:
- Build a streamlined corporate structure and team that would appeal to buyers.
- Fix or replace broken business equipment and make your premises look its best.
- Settle any outstanding third-party disputes.
- Ensure any contracts and leases are entirely in order.
- Prepare full accounts.
- Set a transition plan to move your responsibilities to your senior management team.
- Discuss deal structures with your advisors, including tax, financial and legal.
How long this takes depends on the current state of our business. Remember, it’s about creating the right impression, meaning that replacing the carpets or painting the walls could pay off in the long run.
Get the timing right
Timing is everything in business – doubly so when preparing for such a substantial transaction.
There are various reasons why you might be mulling over selling the company. The firm could be accumulating debt at a disconcertingly rapid pace; and, even if it isn’t, the business could soon fall on financially hard times if your passion for the work has started faltering.
Whatever the reason, if you have made your decision recently, don’t rush bringing the business to market; otherwise, you could hamper your efforts to sell it successfully.
Generally, you want to consider selling during a buyer’s market. In other words, if your industry is expanding and forecasts are optimistic, you are more likely to find a buyer.
Obtain a business valuation
How much is your business worth?
A business consists of tangible assets like buildings and intangibles like reputation and intellectual property. Determining what your business is worth is complicated because of these factors and because you cannot deliver an objective valuation.
Different models also exist for valuing a business, including:
- Price-to-earnings ratio (profit multiplier)
- Asset valuation
- Comparable analysis
- Discounted cash flow
Ultimately, with any valuation you come up with, you should be prepared to negotiate and justify it. This is why outsourcing to an expert like Hilton Smythe is the best possible solution.
Tidy up your books
Prospective buyers will open up your accounts to ascertain the true worth of your business. Be prepared to answer questions on income, expenses, cost fluctuations and financial forecasts. Clear answers provide confidence to buyers and bump up your business’s value.
Ensure you can provide easy access to the numbers and that your records are categorised and ordered for easy access. Likewise, extending third-party contracts close to expiration removes a potential headache for future owners.
Communication
Communication with your team is essential because rumours spread like wildfire. Even if you’re not yet ready to publicise the information, preparing a communication plan in advance lets you control the narrative.
For example, do you have a channel where employees can express their concerns? Is there a designated party responsible for acting as a conduit throughout your company?
Understand the different ways to sell your business
How you sell your business (and to whom) is up to you, but each sale can be split into two categories:
1. Share Sale – A share sale is a direct transfer of your stake in the company. It’s the clean break most business owners are searching for.
2. Asset Sale – An asset sale involves a buyer taking control of distinct assets, which is often less risky for the buyer. Following the sale, your company will cease to exist.
What works for you depends on the situation. Speaking to a business broker like Hilton Smythe lets you decide which option is best.
Choosing business brokers when preparing to sell
Business brokers assist in the sale of a business. They leverage their expertise to achieve a streamlined sale. While not mandatory, brokers have industry connections and experience that bolster your chances of a successful sale.
However, selecting a broker is easier said than done. Consider the following factors:
- Fee structure
- Prior experience
- Specialist areas
- Marketing strategy
- Reputation
Note that you should also ask whether you are working with a broker directly or an intermediary. Many operators set themselves up as “business transfer agents” and outsource their clients. Always ensure you work with the person directly responsible for marketing and selling your business.
How Hilton Smythe can help you to prepare your business for sale
Embarking upon a business sale while maintaining day-to-day operations is a struggle for even the most experienced entrepreneurs. With that in mind, enlisting a business broker like Hilton Smythe allows someone else to take the strain.
Take advantage of our professional connections and support to make selling your business a breeze. To learn more about how the UK’s number one business broker can help, speak to the team today.
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