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Planning and Timing

Selling when you want to is clearly the most advantageous, but this is not an activity that should be entered into lightly. It is a time-consuming and arduous process and so planning is essential. There are a myriad reasons why entrepreneurs decide to put their business up for sale. You may be considering retire­ment or just be bored or dissatisfied with the whole enterprise. Or it could be that the business is no longer profitable and you don't want to invest further in a venture in which you've lost faith. Whatever the reason, planning and timing will help you achieve a more favorable deal. It's key to avoiding the elephant trap of appearing desperate to sell. Expect the transaction to take, on average, 6-12 months. Of course, some transactions are a lot quicker and a few longer, but this is a norm. Don't forget that throughout the whole process you also have your “day job”, that is keeping the business going and maintaining or improving profits. Any downturn will almost always affect value adversely.

There are always tens of thousands of businesses for sale at any one time, not all of them saleable. The state of the economy, as well as your own business performance, has an effect. Even fashion trends can influence the timing of a sale. If you are con­sidering a sale, keep an eye on these external factors. Issues such as falling rates of interest and positive trends in your market can create that important catalyst.

Presale Grooming

Before selling your home, you will probably consider spring cleaning or even decorating to bring it to its best. Preparing your business for sale requires the same process, called grooming. The aim of presale grooming is to get both your business and yourself into tip-top condition to ensure you sell at maximum value. This means looking at issues that may reduce value and put­ting them right. This might include updating poorly presented or inadequate information, improving your business environ­ment and the quality of your facilities, and enhancing all those positives in the organisation such as registration of IP and qual­ity of staff training. Grooming also includes looking at your most effective tax opportunities. These need clarifying before you embark on any sale process

Your presale checklist

In addition to a tax overhaul and the essential tidy-up, here is a list of information you should start to gather together and take action on as necessary:

•  statutory books, including shareholder details;

•  incorporation certificates;

•  articles of association;

•  shareholders' agreements;

•  audited accounts for the last three years;

•  details of overdraft arrangements and other loans;

•  completed tax returns and any relevant correspondence with Revenue and Customs;

•  all agreements relating to major customers and suppliers;

•  all standard terms of business;

•  all insurance policies and details of any claims made within the past five years;

•  list of properties owned or occupied with details of use, own­ership, rateable value, mortgages and sublettings, including copies of leases;

•  asset register;

•  details of patents, trademarks, registered designs and copy­rights and disputes that may exist;

•  all licenses, or consents in relation to the business or premises;

•  any environmental audit carried out at any premises used or owned by the business;

•  current health-and-safety policy and the last safety audit;

•  organisation chart;

•  employee contracts;

•  all other agreements with employees relating to benefits and share options;

•  standard terms and conditions together with any employee handbook;

•  details of any company pension arrangements or schemes in place, together with list of employees participating in them;

•  details of any existing, pending or threatened arbitration or litigation together with amounts involved.

This is not a comprehensive list but it's certainly a start. The more detailed and up to date your information, the better placed you will be for negotiations that result in a credible offer. Hiding critical information for fear that it will adversely affect the value is simply a nonstarter. In smaller organisations, owner-managers are often seduced by the idea of reducing tax year on year. Trouble is, this is almost certainly going to reduce the value of your business if you have burdensome overheads in an effort to reduce taxable profits. Hence the whole point of grooming for sale is to start early and eliminate bogeys like this. In an ideal world you need steady or increasing profits for a minimum of three years. In the mean­time, you may have to pay more tax but hopefully there will be compensation through the increased value you will achieve on sale.

As most people sell only one business in a lifetime, you need to ensure the grooming process is thorough and focused. That's also how you must be during the ensuing sale.