Selling a Business: How do I get the best price?
In the third of our Selling a Business blog series, corporate finance manager Jane Harrison looks at grooming a business for sale.
Ensuring that your business is in the best possible shape can have a significantly positive effect on the sale price, so the grooming process should be approached meticulously and with plenty of time.
Grooming is not a superficial window dressing exercise – a more suitable analogy is preparing an athlete for an Olympic event, which can take many months or even years of focus.
Prospective purchasers will want to see detailed historical financial information, including accounts, preferably audited, and an indication of future forecasts. They will also expect that there are no tax problems or compliance issues.
Planning in advance should ideally mean that your business can demonstrate a clear record of financial improvement or stability. Of itself, that will often be fundamental to attracting and sustaining buyer interest. Other areas to address include appropriate financial control to ensure that there is sufficient working capital, perhaps by reducing stock levels and managing debtors and creditors.
Buyers usually prefer businesses that can demonstrate rising year-on-year profits and show strong sales forecasts, but these must be realistic and backed by hard evidence, such as a full order book.
One sure way to derail a sale is to use quick fixes to inflate profits. Buyers or their advisers will soon spot any attempt to pull the wool over their client’s eyes.
The valuation of your business is clearly pivotal to the sale and whether or not the best value is achieved is often dependent upon foundations laid in the years prior to commencing a sale.
It is a truism that valuing a business is more of an art than a science. And in the absence of taking a business to market, shareholders should get professional advice on the best valuation method for their business .