Deciding to sell your business?

The decision to sell a business is by no means an easy one. Very often we become "attached" to the business, making it difficult to contemplate letting it go, except of course, when things begin to go wrong! We then wished we had sold out months ago when things were "on the up" or when we had an interest from a potential purchaser. Unfortunately, none of us have the luxury of making decisions with hindsight but the decision could at least form part of an overall plan or "grand strategy". If the only real purpose of running a business is to eventually sell it, then it makes sense for us to plan it.

So when is the right time to sell? There are of course many factors but assuming the business is trading well, the best price can be obtained if profits are maximised at least two years prior to a sale (through the release of provisions) and that you can demonstrate current year and future profit growth. It is also important to ensure that you have all your information systems up to date (including statutory and management accounts), outstanding debts and queries on accounts resolved, legal issues finalised etc. As soon as you have a potential purchaser, you can be assured that the legal people will want to have all the information about your business – more than you ever imagined! It is useful to remember that a company sale can take 6 months leading up to legal completion, not to mention 6 months to find a suitable buyer. If there is any doubt about your company’s viability, decisions have to be made immediately, as a distress sale runs the risk of buyers stringing you into receivership. Businesses losing money in the year of the sale are not easy to sell, particularly as any initial offer can be downgraded or totally withdrawn following the due diligence exercise, which might uncover further trading losses. If possible, it is always best to turn a company into profit first, and then sell.

To achieve a successful sale, it is as well to identify the various exit routes available to you. A small proprietor owned business should think about becoming a limited Company, as it is "cleaner" to purchase the shareholding rather than just assets, name and goodwill, leaving the owner to pay for any outstanding debts. It also provides flexibility if the owner wishes to sell just part of the shareholding leading to the possibility of a merger or acquisition. Other exit routes include floatations, trade sales, management buy-outs (MBO), management buy-ins (MBI) and institutional buy-outs (IBO) with venture capitalists. Each type has its own advantages or disadvantages. Management buy-outs for instance, may sound fine but be wary of demotivating your management team if the deal is not completed and be wary of the team becoming distracted from the day to day running of your business. Also, potential trade buyers will not wish to compete against a management buy-out.

To help sell a business, it is always worthwhile considering external help where advertising, enquiries, approaches, initial meetings and negotiations can all be dealt with at "arms length" with confidentiality secured through a suitable legal agreement. Use your own knowledge to help identify potential buyers and record all unsolicited approaches from companies and individuals (whether you wish to sell immediately or not). Finally aim to have a short list of 6 serious buyers at the outset – offers could be double that of others!