Now is not a good time … or is it?
With the effects of the credit crunch, and as many as 80% of business acquisitions being said to fail in that they don’t increase or maintain shareholder value, one may think that it is not an appropriate time to sell a business. However as investors were extremely cautious with their money after the losses made in the late nineties and later, there is a large pile of un-invested cash, which investors are becoming increasingly anxious to invest. There are still plenty of buyers out there with ready access to funds and if the target company is especially attractive a significant premium could be realised.
Start planning now
There are a number of reasons why potential business vendors should start the sale process now rather than wait. The main reason is that it can take a surprisingly long time to make a sale, and the longer there is to plan a sale the more chance there is to complete a successful transaction at the highest possible price. If someone turns 65, or suddenly falls ill, they may be forced to sell in a hurry and not be able to realise the full value of their business.
Getting the most out of a sale
Tips for getting the most out of a sale:
- Continue to properly manage your business whilst trying to sell it. It is all too easy to take your eye off the ball with the distractions of sale, and then if the sale doesn’t complete the company may have lost significant value and appeal.
- Groom first. Just as a car or house is cleaned before being put up for sale, so a business needs appropriate grooming. Ideally there would be a minimum of one year, and preferably two years, to groom a business so that the effect of changes (whether commercial or financial) can properly be reflected in financial statements.
- Make sure your key employees, suppliers and customers have been properly locked-in.
- Settle all outstanding tax and legal issues.
- Plan early. Too many businesses are sold too late and are merely distress sales.
- Consider all aspects of separation issues, when selling one company within a group, or a division of a business. For example two separate businesses may share joint resources, rely on loans guaranteed by a separate entity or have a combined pension scheme for employees. The business for sale must be offered on a “stand-alone” basis.
- Undertake a sell-side due diligence. This will enable you to anticipate buyers’ concerns and demands, and will ultimately lead to a position of strength when the negotiation starts.
- Marketing for sale. Plan carefully to identify potential buyers, how to find them and approach them. An ill thought out marketing approach can lead to the wrong buyer and ultimately to you not receiving as much as you could.
And then there’s always the tax man!
Underpinning the time taken to effectively plan a sale is proper taxation advice. The timing and structure of the sale could have significant tax consequences. BKL Tax are on hand to offer the appropriate advice.
When to start?
If you are over 50 and own a business, now is the time to start thinking about planning turning your business assets into personal assets, even if you don’t anticipate a sale within the next few years.
For more information about how we can help you, please contact us.