The considerations that go into selling your business
Selling a business is often described as one of the most significant financial and emotional decisions an entrepreneur will ever make. For many, their business is not just an asset. It is their “baby”, often built up as a result of years of hard work and personal sacrifice. Yet, when the time comes to sell, most owners underestimate the complexity of the process and the emotional toll it can take.
The reality? It typically takes five years to properly prepare a business for sale. That timeline is not arbitrary but based on the steps required to maximise value, minimise risk and ensure a smooth transition.
Preparing a business for sale is not something that can be rushed. In today’s market, buyers are sophisticated and have high expectations. To handle this process successfully, business owners need to plan, prepare and execute the sale with care.
The financial and legal factors of selling your business
While the financial and operational aspects are tangible, the emotional readiness is often overlooked and it can derail even the most well-prepared sale. However, it is important to appreciate the practical steps sellers need to go through in order to complete a successful transaction.
1. Initial pre-sale planning
A potential buyer may not want the whole business or they may want the business, but not the property from which it trades. Some tax efficient planning can be carried out in many circumstances in order to strip out unwanted assets or business lines. However, these can be complex and time-consuming and will require specialist tax and legal advice.
2. Operational efficiency
Does your business have a strong management team or is it highly dependent on you as the owner? Often deals are structured such that the owner is required to stay on for one or two years under an earn-out clause, but buyers would want to see that the business can survive without them, so you need to make steps to remove yourself from the day-to-day operations.
3. Strong financials
Having a good accountant by your side pays dividends when it comes to selling your business. Not only would your accountant and tax adviser ensure that all financial and tax compliance requirements are adhered to, a reputable adviser would also suggest ways in which your financial systems can be improved upon. This is especially important during the sale process as the buyer’s due diligence would interrogate your financials and any weaknesses would potentially affect the sale price.
4. Due diligence
Building trust with potential buyers and providing them with necessary information is important. In many cases, a vendor due diligence pack can go a long way in attracting buyers. Not only would they be able to quickly get their hands on the financial information, they may also find that their own due diligence costs are reduced as a result.
5. Pre-sale valuation
What is the magic number you are looking for? Is this based on proven valuation methodologies or on your gut feel? If the latter, you may be setting yourself up for some bad news when potential buyers start making offers. Be clear now what your business is worth by obtaining a formal and independent valuation.
What happens after you sell your business?
Have you thought about what will happen to your “baby” after sale, when you are no longer involved? Will the new owners honour the legacy of what you have built up over many years. Will they look after the staff who are like a second family to you? Owners often worry about selling too early or too late. If the business thrives under new ownership, will you regret letting go? Conversely, if it struggles, will you feel responsible?
Even if you are involved with the business post-sale, you will no longer have control. How will you fare with no longer calling the shots? Sometimes a clean break is better than being tied into an earn-out where you have little control over the direction of the business during the earn-out period, but this will likely affect the sale consideration you receive.
The most important question, however, is have you thought about what you will do with yourself after the sale? What will you do with that spare time? Travel? Mentor others? Cultivate hobbies?
Will you reinvest the proceeds into a new business venture, or into income generating assets such as property? How will that be structured? Will those assets be held in your personal name or via a corporate vehicle? Whatever you decide, you will undoubtedly need tax and legal advice as well as input from an independent financial adviser.
Why it’s best to speak to an advisor
Selling a company requires careful planning, preparation, and execution. A five-year timeframe is reasonable for financial preparation in anticipation of a sale, but it also provides for mental preparation. It is therefore vital to work with advisers who understand both the technical and emotional aspects of selling. A good adviser can guide you through tough decisions while keeping things grounded.
With Gravita’s experienced and highly capable team, you are not alone and we can guide you through every step of the process.
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