The decision to sell your business will often be driven by a number of commercial and personal reasons. However, regardless of the reason for selling your business, there are three key questions you will need to consider from the start of the process.
Firstly, do you know and understand the value of your business? Secondly, are you clear on your preferred structure of any potential deal? And lastly, do you know who the potential purchasers of your business are?
To maximise the value of your business it is important to plan and prepare your business well in advance of a proposed sale. As part of the preparation you should focus on identifying and, where necessary, improving the key aspects of your business that any potential purchaser will consider. You should seek to demonstrate that your business generates a stable and maintainable level of profitability and highlight the businesses’ growth potential. It should be noted that this pre-sale preparation should not be restricted to the financial side of the business.
Potential purchasers will also want to understand the quality of your key management team and your key customer and supplier contracts amongst other things. A corporate finance advisory team will be able to provide relevant market data of recent deals to support the valuation of your business.
The structure of any sale should also be considered prior to commencing a sales process. The sale may be structured as a share sale or as a sale of the business assets. Tax is usually a strong driver in determining the sale structure, with many targeting a shares sale, with currently an effective 10% rate of tax on any gain. Selling the shares means you will not have responsibility for dealing with company liabilities post deal. Selling the business assets (including key contracts) could be attractive if you are only selling part of your business or if the potential purchaser wishes to disregard certain business assets or liabilities. It is important at this stage to take financial, tax and legal advice to ascertain the most suitable structure for you.
Potential purchasers will buy businesses for many different reasons, but typically the purchasers can be divided into two groups – trade purchasers (those operating within the same or a similar sector) and financial purchasers (typically seeking a profit growing business, regardless of sector). A trade purchaser will look at how your business fits within their own company and their own plans. It could be a known competitor or someone within the wider sector you operate in that wants to enter your market or access product capability. A financial purchaser could be a private equity or an individual investor seeking a growing business. Again a corporate finance advisory team will be able to provide detailed market research and insights relating to activity within your business sector, including details of any potential purchasers recently active in the market.
Selling your business can be a daunting process, however, with careful planning and by engaging professional advisers, such as Grant Thornton, early in the process will assist you in reaching a successful outcome. For most there is only one opportunity to maximise the value of the business.