Thinking of Selling your Business?

Prepare before you sell - Good preparation can add up to 50% to the sale price

Selling a business is not a quick fix activity. Rather like selling a house, the amount of effort put into preparing a business for sale can make a huge difference not just to the ease with which is can be sold, but also for the amount that can be got for it – some pundits claim that good preparation can add up to 50 per cent to the sale price.

Ideally, the sale process should start two to three years ahead of the sale itself. This gives the owner the time to create a second tier of management to continue running the business when they have gone. Without this, the owner may find that the only way they can sell their company is to stay on for a few years – something some owners looking to sell will not want to do. In the case of a small business, where the owner is its lynchpin, this is a particular issue.

Preparing in advance will also give the owner time to optimise their tax planning. If this is handled correctly the tax liability on the sale con be reduced to just 10 per cent using so-called taper relief on capital gains tax.

The next step is to make the company as attractive as possible by sharpening its focus. Owners should ask themselves: what is my business best know for; what sets it apart from the competition and is therefore worth paying a premium for? By focusing on the strengths of the business, it will make it easier for a potential buyer to see the benefits and make a decision.

Preparing for sale is also the time to audit accounts and clean up any liabilities – such as any potential legal claims and difficult leases. An audit will also identify any areas where the owner's personal finances are intertwined with those of the business – which should be disentangled before the business is put up for sale.

Owners looking to sell then need to appoint a team of advisors made up of a corporate advisor, an accountant and a lawyer, all of whom should have experience in selling a business. This may mean not using the accountants and lawyers that the business has traditionally used over the years, but this has to be done to ensure that the sale goes as smoothly as possible.

If owners do not have two to three years to spend getting their business in shape, the secret is to be ruthlessly focused in the run-up to the sale and to be prepared to make big changes.

The first step is to make the business attractive to buyers, and this can involve a shift in what the business actually does in order to get the best price – this is because different sectors use different multiples of annual turnover as a guide to share pricing, and by shifting the focus of the business, say from printing to marketing services, the owner may be able to apply a larger multiplier than before.

Owners should also think about what kind of buyer might be interested in the business – and then look at what turns them on. Once the owner knows what potential buyers are looking for, they can highlight those aspects of their business.

Business owners only sell their businesses once, so it is vital to get it right first time to ensure that they get the best price they can for what often amounts to a lifetime's hard work. Get the best advice that can be afforded, make the business look its best and research the most appropriate buyers for it – the end result could well beat expectations.