Thinking about selling your business?

When all entrepreneurs embark on their business journey they are typically focused in the early years on getting their business off the ground, putting all their time and effort into establishing their brand, reputation and gaining a market share in their chosen area of specialism. Once established the focus often shifts to expansion and growth, growing the business for the benefit of the owners, the business employees and a range of wider stakeholders. Whilst these stages of the business cycle are important, it is equally important that business owners begin to plan for their eventual exit from their business.

An exit may come in the form of passing on the business to the next generation of your family or potentially selling the business to a group of your key management/employees. However, often the most lucrative exit option from a financial perspective will be to sell your business to an external third party, this could be a competitor, a new entrant to the market or potentially even to a private equity fund. If this is likely to be a realistic exit option for your business and one you would consider, there are a number of areas in your business you should review in detail in advance of any business sale. Taking proactive steps in the years leading up to a potential sale will ensure you give yourself the best opportunity to maximise the sales price you receive, it will also go a long way to ensuring the whole sale process runs as smoothly as possible.

We have provided some notes below on four key areas of your business that should be reviewed in advance of a potential business sale:

  • Financial Information – During any sale process the prospective buyer will rely heavily on your monthly management information during financial due diligence. The ability to provide detailed financial information on your business performance is essential to maximise potential sale value. You should also ensure you keep detailed records around your customers, suppliers, and employees as all these aspects of your business will be analysed in detail during due diligence.
  • Senior Management Team – The vast majority of owner managed family run businesses are highly reliant on their owners/shareholders in order to run the business operations on a day-to-day business. One of the key questions any prospective buyer will ask when evaluating your business is would your business be capable of operating if you and your fellow shareholders were no longer involved?  Putting in place a credible and experienced senior management team (who are not shareholders) in advance of your exit will enhance the attractiveness of your business to a prospective buyer.
  • Compliance Review – If you are planning an exit from your business in the next few years, you should consider carrying out a detailed financial and legal compliance review of your business to ensure you have detailed records of the information that would be required by a prospective buyer. This review would include ensuring the statutory books of the company are up to date, a review of legal agreements such as property leases, customer contracts, supplier agreements and intellectual property documentation in relation to your products and processes.
  • Taxation – On the completion of any profitable business sale there is naturally going to be tax liabilities to consider, for both owners/shareholders and potentially the business itself. There are steps you can take in the years leading up to your planned exit date that can mitigate an element of these tax liabilities, it is critical you consider your tax position fully well in advance of a sale transaction. Immediately after a sale of your business you may also increase your exposure to inheritance tax as you convert value in your personal estate from a business asset into a personal asset on your exit, again there are steps you can take to mitigate this tax exposure if appropriate planning is undertaken.

If your ultimate objective is to exit your business via a sale to an external third party and you require any assistance or advice relating to this, please do not hesitate to get in touch with your usual contact or email