It doesn’t need to be like that – some thought and planning can turn it into a rewarding exercise.
Have an exit strategy
A business is probably the most important investment an entrepreneur will make. It is crucial with any significant financial undertaking that the investor have an exit strategy. Without this, there is a risk that the full value of the investment will not be realised, particularly in the fast moving world we are now in. For example, technology can quickly make a business redundant and one should have pre-determined “triggers” to indicate when an investment risks losing value, making it a good time to sell.
If you decide to sell
To whom do you want to sell? A family member or the staff in the business or will you go to the market and see what it will pay? This is an important consideration.
Next, plan backwards – what will a purchaser want to see?
- At least two years’ financial statements which should show good and increasing profits. If the financial statements are not audited, consider doing this. An audit will give a purchaser that extra assurance that the financials are independently and fairly stated.
- A comprehensive due diligence process, so start thinking about what should be part of this –
- A succession plan. This will give a purchaser comfort that the business can be managed without the owner. It will also indicate that the staff has some form of assurance their livelihoods are being looked after. If the staff are happy, they will be productive.
A good business owner will want to leave a legacy, so ensure the organisation will be well run after you have left.
- Complete staff records – years of service, salaries, promotions, disciplinary issues and so on.
- Well documented systems and procedures. This indicates to a prospective purchaser the business is well managed and well run. It will also be of value to them when they take over the business.
- All other pertinent information such as leases, major contracts, any disputes or pending legal matters etc.
- Records confirming that all compliance measures are in place including that the business has tax clearance and all laws are complied with. Minutes of meetings, especially board meetings, will need to be comprehensive with all legal requirements fulfilled e.g. notice periods for meetings.
- Your customer list. It’s good to review it well in advance, so if there are any gaps, new customers or new segments can be found.
- A list of business assets.
Putting together a due diligence is very time consuming but doing it over a period of time will make it more comprehensive and it will be easier to compile. It gives you time to ensure that the business will look attractive to a purchaser.
- Have the business valued by an independent valuer. Doing this well in advance of selling is also beneficial as it will indicate any shortfalls in your business which you can rectify before going to the market.
Selling a business will be a lot easier with good planning and preparation. Talk to your accountant who is in a good position to give you sound advice.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)