Fail to prepare, prepare to fail, a little cliched but still it holds true. Which is why at Dexterity Partners we undertake a “Fit to Sell” review at the start of the process to put the business in the best possible position going into a sale. The key aspects that need to be considered to ensure that the maximum is achieved from a business sale are:
There is a sustainable business model which has constantly generated profits and sales.
The business is not dependent solely on the owner and has a strong management team.
Being able to prove your key attributes with facts not opinions with data rich evidence.
Ensure all legal and tax issues have been considered.
The preparation that will generate the greatest value is if you can show a strong past performance, have a clear vision of future opportunities and demonstrate you have the core competencies to achieve these opportunities to potential buyers.
Some of the questions to ask yourselves when preparing to sell a business to ensure you are going into the process in a strong position are as follows.
Does a strong management team exist with the ability to run the business separately from the owner?
If not, the buyer will be concerned about how it will operate going forward.
Are customers long standing, recurring and remain due to the quality of a clearly defined product or service?
If dependent on the owner or personal relationships then future sales may be a challenge.
Is there financial information and control regularly monitored?
If not then reliance on opinions rather than facts will depress the sales value or prevent a buyer from understanding the financial impact of the Seller’s business model.
Are debtors, creditors and stock levels consistent and well controlled?
If disputes, credit notes, bad debts or stock write offs it will be difficult to confirm the underlying profit levels.
Legal agreements in place and up to date?relationships.
If these are not documented then it makes the future uncertain especially if current relying on the owner's personal
Taxation; personal and corporate
They need to be reviewed to ensure the sale will be possible at the lowest tax rate, as well as there being no unexpected issues that crop up during the process.
Another important preparation step is to ensure you and your advisers think like a buyer.
A buyer is interested in the future performance. They use the past performance to assess the likelihood of this performance being maintained and improved under its ownership.
It is important to look at the deal through the lens of what does a buyer see in the business? What potential do they see? What about the current trading makes the business so attractive?
If you can answer those questions you can accentuate them, make them even more of a strength for you and ensure that they are at the forefront of any deal. By enhancing these strengths you can therefore make the business even more attractive to any buyer and help to increase the value in deal.
At Dexterity this forms part of our “Fit for the Future” process we undertake on every deal to help put the business on the best possible footing to ensure that firstly it is attractive to potential buyers and also that the deal value is as high as possible.
The preparation will generate the greatest value if you can show a strong past performance, have a clear vision of future opportunities and demonstrate you have the core competencies to achieve these opportunities.
Dexterity Partners always undertakes a “Fit to Sell” review of your business before considering a sale. The key issues considered when undertaking this process are as follows:
A sustainable business model which has constantly generated profits and sales. This is hopefully a relatively obvious one, a consistent business with regards to sales and profits is exactly what buyers like. It demonstrates the chances of future performance significantly dropping are low and that the buyer is taking less of a risk. Less of a risk usually means a higher multiple in the valuation process and thuis a higher value for the sale, which is what everyone wants.
The business is not dependent solely on the owner and has a strong management team. If you, the owner, are pivotal to every decision and everything hinges on you, then what happens when you leave the business? Now this is going to be true for any small to medium size business, but it is more true for some than others, and the less it's true for you then the more attractive the business is to a buyer and thus the greater the value you can sell for. The way to look at this is you will leave the business after the sale wither immediately or after an agreed period of time and once you leave the new owners don't want it to be some dependent on you then when that time comes the business crashes and can no longer function. This can often be seen through customer and supplier relationships which can often be very owner led and driven and there is a risk that when the owner goes the customers do too and the suppliers start becoming a little less favourable to you. What's important is steps are taken to resolve this as much as is reasonable before you are in front of a buyer making you an offer
Identify future opportunities and how they can be achieved and why they are not currently realised. Part of this is covered under the previously mentioned “Fit for the Future process”, however part of it is to make sure the vision you present to a potential buyer fits with the current business performance and actions.
Look to prove your key attributes with facts not opinions, data rich evidence. To put it quite simply the numbers don't lie. whilst in many cases the numbers are not the be all and end all, and there are many other factors in the reasons for buying and in the valuation, these can all be subjective and people will disagree. Basing a deal on this is risky. Having a strong factual basis for all aspects of the deal, whether explaining past and current performance or the potential of the business or perhaps the actual structure of the deal itself, it is ideal to be grounded in good solid facts and figures. Additionally by doing this it further demonstrates you are fully in control of the business and have strong financial control as you have all the numbers and are not making guesses and stating opinions, which if not 100% correct then might make the buyer questions what else you have said is not correct which is a very dangerous position to be in as a seller as it puts you on the backfoot and ripe for a buyer to start chipping on the price.
When considering a sale to a complementary or competitor, identify synergy benefits. Often this can lead to a greater than expected value as the buyer sees the potential and what it could deliver and thus values the business as such.
Ensure all legal and tax issues have been considered (“Fit to Sell”). There is nothing more likely to sink a deal or at least vastly reduce the value than last minute tax or legal issues. They can be fatal as they often occur late on in the process and can alter the outlook of the business fundamentally in the buyer's eyes. A good example of this is if you were to get the final stages of the deal and it comes to light that you don't technically own the IP that you thought you did, and so the buyer is actually buying that IP in the deal. This would hugely impact the view the buyer has on the deal and how worthwhile it is and could easily result in them pulling the plug. Now whilst you might think that seems an unlikely scenario it is actually not that uncommon for issues such as that to arise and have to be tried to fixed last minute. part of our process aims to ensure all those issues are identified and resolved before the sale process gets underway and don't crop up at the end putting everything in jeopardy as well as being expensive mistakes to fix.
If you have a financial forecast make sure you can over achieve during the sales process. You want to show that the business is being sold for reasons that are not that its becoming less profitable or trading is declining and you want out, this helps ensure this is not the case.
Look for one adviser who can manage the whole process. You will not have the time to effectively deal with lawyers, corporate finance advisers, accountants, tax specialists and maintain your business performance.
Dexterity Partners works in partnerships with owners of the business to ensure these are all optimised prior to commencing any attempt to sell a business.
For further information and impartial advice, feel free to contact our founders at Dexterity Partners:
Simon Brayshaw - Simon@dexteritypartners.co.uk
Jonathan Priestley - Jonathan@dexteritypartners.co.uk