When planning for a business exit, preparation is key.
When a business owner chooses to explore the possibility of selling a proportion or all of their business, the unknown challenges of navigating such a process means that preparation is essential.
Preparing a company for sale is crucial to maximise value, ensure a smooth transition, and minimise risks during the process. Without properly preparing a business for exit, founders may discover that there is a huge valuation gap between what they expect to receive and what a potential buyer sees as a fair market price.
Reasons why preparation is essential
Clarity on personal and business goals
Preparation allows a business owner to define what they want from the sale (e.g., financial gain, company legacy) and therefore what deal structure they need to work towards to ensure a sale aligns to the identified goals.
Maximising business valuation
Potential buyers will closely examine financials, meaning that advance preparation can provide the opportunity to improve profitability and address any inefficiencies, which can increase a company’s valuation.
It can also provide the opportunity to resolve outstanding debts and clarify asset ownership which in turn can make a business more attractive, as buyers want to invest in a company without unexpected financial burdens.
Appealing to qualified buyers
It is often the case that buyers seek certainty, and a prepared company presents less risk of unforeseen issues, making it easier to attract high-quality buyers that may be willing to pay a premium.
Organised documents, clear processes, systems, controls and professional branding is likely to appeal more to potential buyers and demonstrate how a business is positioned for future success.
Streamlining the Due Diligence process
As the selling party, a business owner will want to minimise delays. Missing information or concerns that are not responded to in a timely manner can raise the prospect of a sale stalling or collapsing. This means that the organisation of documents, contracts, and financial records in advance is paramount in helping to prevent such delays.
In turn, this also helps the selling party to build trust with the buyer. A business that has well documented financial and operational records helps to demonstrate transparency, increasing the trust that a buyer has in the business and therefore increasing the likelihood of a smooth sale.
Business continuity during transition
Continuing with the theme of minimising delay and disruption requires a business to make sure processes and critical business knowledge are clearly documented. Creating guides on operations, customer relationships, and employee roles makes the transition smoother for the new owners.
Vital for helping to preserve the value and knowledge base, a business owner must also prepare key members of staff because a solid succession plan will mean that essential staff are motivated to not only stay through the sale but, if applicable, remain determined to see the company continue to prosper.
Tax optimisation
Structuring a sale strategically can assist with minimising the tax consequences that arise from disposing of shareholdings within a business. Preparing allows time to appoint and/or consult with the necessary professionals that have experience in business sale transactions, including tax and legal advisers, chartered accountants and wealth managers.
Summary
Preparing a company for sale is an investment in its future value and, in some cases, it can take years to prepare a business for sale. Those owners that prepare well can put themselves in a position of not only optimising the value of the business but also achieving better deal structures.
Using trusted advisors can help a deal conclude more successfully but it can also enable a business owner to attract a strategic buyer, command a higher price and achieve a better deal structure. After all, a priority for most business owners considering an exit will be to secure a smooth transition while protecting their interests and the interests of the business itself.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.
Legal advice and accountancy services are not provided by St. James’s Place or Brades
