There is much to be done at a personal level as part of exit planning, particularly around personal taxation and a seller should be maintaining a dialogue with both his/her accountant and IFA. Selling shares versus assets can make a big difference to the amount of tax payable, as can the way surplus cash in the Balance Sheet is extracted or used to make pension payments.
Understanding these issues ahead of selling a business is vital to ensure that the sale is as tax efficient as possible.
People form a large part of the intangible goodwill that a buyer pays for and is probably the resource most likely to ‘make or break’ an acquisition for the buyer. Prior to a sale, the business owner should ensure that appropriate paperwork is in place – employee contracts, job descriptions, adequate H&S policies etc
We usually advise sellers to briefing their key staff, at the appropriate time, that a sale process is to be undertaken. Handled the right way, it can provide confidence to staff that there is ‘life after the current owner’, indeed very often there is additional opportunity and a buyer will be pleased to learn that senior staff are aware and therefore won’t get ‘spooked’ at an announcement sometime in the future.
Regardless of the type of business, intrinsically the buyer is buying future cash flows and therefore the financials of the business are going to be scrutinised carefully. If the company's systems are not capable of producing monthly or, at least, quarterly management accounts it is worth asking the company's external accountants to do this. During the due diligence process a buyer will want updates on the performance and having accounts readily available will avoid delays and build confidence.
Revenue & Clients
Rational terms of business should be in place with every customer/client. Beyond that, anything which helps support the premise that the customer will spend more at a point in the future is useful, whether that is a contract in place, a blanket order, or even just a schedule that demonstrates customer longevity and regular spend.
It is worth reviewing the company’s fixed cost base and taking advantage of any 'low-hanging fruit' to make savings. Typically trade businesses are bought at between 3 to 5 times the cash flow they generate and therefore saving £1 in fixed costs can add between £3 and £5 to the price paid.
The Balance Sheet is an important aspect of a business sale, especially if the owner is selling the shares of the business and hence is also an important part of exit planning. Action should be taken to ensure stock is ‘good stock’, and at appropriate levels (overstocking can be a contentious issue in negotiations). Debtors and creditors should be collected/paid to terms to ensure that working capital is at an efficient level. If there is a freehold or long-leasehold property in the Balance Sheet, there needs to be a plan to extract it (with the tax implications understood), since it is unlikely a buyer will want to buy the property with the business.
Buyers will visit the premises and it makes a difference if the business is well presented, clean and tidy. Selling a house without tidying up would be inadvisable and so it is with the sale of a business!
It is important to understand the parameters around any existing leases and what terms might be available to a buyer. If the seller owns the freehold that the business occupies, what is the market rate to lease and is the seller happy to become the landlord?
If you would like to discuss the sale of a business either now or in the future please Contact Us or call us on 02476 100476. Your enquiry will be treated confidentially and on a no-commitment basis.