Preparing a Company for Sale: 14 Tips to Attract a Buyer

A homeowner selling their house may apply a lick of paint to attract buyers, while a mechanic might fix a car’s issues in order to gain a better price for it. Preparing a company for sale should be no different, yet business owners often put their company up for sale without any real preparation at all.

A 2022 joint study between M&A Source and the International Business Brokers Association (IBBA) found that only half of all businesses listed for sale actually sell. The report went on to suggest, however, that the chances of selling are greatly improved by “working with an experienced advisor”.

No doubt one of the first things those advisors suggest is that time is spent preparing the company for sale first. In fact, the M&A Source/IBBA report found that “lack of seller preparation” was listed as one of the leading reasons given by advisors as to why sales don’t close.

Give your business the best chance of selling by using the following checklist to ensure your company is appropriately prepared.

 

 

Get a valuation from a specialist

In the aforementioned report, “unrealistic seller value expectations” was by far the leading cause listed for businesses not finding a buyer.

We’ve all seen private listings for cars and other items in which the seller is wishing to receive an unrealistic price for their wares. Often, they’ve priced their items based on nothing more than what they’d like to get for them. Cannier sellers consider what price similar items are being sold for, as well as how a potential buyer will view their offering.

Companies listed for sale are particularly vulnerable from bloated owner valuations. When a director has invested so much time, energy, and money into a venture, they’re often hoping to reclaim as much value as possible from any sale. Unfortunately, these efforts may not show in the business as it sits today. Prospective buyers aren’t interested in how much money you’ve spent on the company over the years. They’re only looking at the business as it stands today.

A third party can value your business without the inevitable biases you’ll have. A specialist service will give you a much better idea of what a buyer is likely to offer for your company.

 

 

Get your financials in order

The same list of reasons why businesses don’t sell had “poor financials” as it’s third most common cause.

Every prospective buyer your company attracts is looking for the same thing: a means to generate money. As such, your finances and financial records are absolutely key to securing a deal.

“Poor financials” actually replaced “unrealistic seller value expectation” as the leading reason deals don’t close when the report just focused on smaller companies. This isn’t necessarily down to the actual figures reported by such businesses. While larger companies have whole departments devoted to financial affairs, SMEs often rely on either the administration of one staff member, or even the owner themselves.

This provides the opportunity for financial documents and records to become disorganised. Tidy documents instil confidence in buyers as they can see everything they need to at a glance. Messy accounts can suggest a poorly run business at best, and lead to suspicion of something being withheld at worst.

 

Financial documents to have ready

Ideally, you should be able to present the following information to any interested parties.

• Turnover spanning at least the last few years
• Profit figures for the same period
• Financial forecasts
• Valuations of company assets
• A list of all contracts and leases along with dates and prices
• A detailed breakdown of any debts and liabilities
• Documentation proving the ownership of any IP and registered trademarks
• Any other company reports

 

Ask yourself if you are the business

We often find that owners come to us hoping to sell their business, when all the value in the business lies within themselves. Take a moment to consider how your business would run if you took a month off. Would it tick along nicely, or would it grind to a halt?

If your business can’t run without you, then you have to question what a buyer would actually be purchasing. This isn’t always the case for one-person operations though. A window-cleaning round or ice cream van route can be sold on and picked up by a newcomer fairly easily. A football agent, however, depends on the relationships and contacts they’ve built over many years. Should they leave the business, they take all of those valuable assets with them, rendering the business left behind of little use to anybody else.

If it’s a viable enough option for your business, it’s worth looking into hiring a manager that can run the company’s day-to-day operations for you. Businesses that can run smoothly without too much involvement are attractive propositions for buyers, and will make any potential takeover much easier.

 

Show that your business is resilient to future risks

No matter how successful a company is right now, purchasing any business is a gamble. If you can assuage any buyer’s fears by futureproofing the company somewhat, then you’re more likely to achieve a sale. To do this, you first need to look at your business and determine what would be the worst things that could happen to it.

If your company leans heavily on the custom of one or two clients, this can be a red flag for any buyer. If one of those clients go bust or simply decide to go elsewhere, it could have devastating ramifications on your own business. General consensus suggests that no client should make up more than 15% of your revenue.

Diversification is key. Not only in spreading the risk across multiple clients, but also in the products and services you offer. Consumer trends and external factors can change quickly. If you suddenly find it difficult to obtain certain materials, or a negative news story changes public opinion, companies dealing in just one product can soon become troubled.

 

 

Make your business as attractive as possible

Put yourself in the shoes of a buyer for a moment. What are the elements of a business that would deter you from offering for it? Likewise, are there any factors that might encourage a sale instead.

Even if you’re thinking of selling your company in a few years’ time, it’s good practice to start preparing it for sale now. If you can trim your outgoings to improve your profit margin, then that’s a great start. Old software subscriptions or unused phone contracts are particularly good candidates for trimming costs.

If your business premises will make up part of the sale, it goes without saying that it should look presentable. If there are any repairs that need to be taken care of this is the perfect time to have them sorted. Similarly, a lick of paint and some new furniture can go a long way toward making your business more desirable.

 

Resolve any lingering issues

If your business is involved in any outstanding legal disputes, you’ll find that interested buyers will be thin on the ground. These outstanding cases could be with suppliers, clients, or even employees. Disputes with current or ex-employees in particular, can have the ability to drag on for long periods and become complicated.

If you have the ability to settle any debts before going to market, then potential buyers have less ammunition to talk down your asking price. A debt-free business is very attractive to buyers, and provides an image of a well-run company.

 

Secure the services of key employees

If your business would struggle if it lost a particular employee, you should look to try to secure their services if you haven’t already. Make temporary contracts permanent, or offer a pay rise if their current wage isn’t competitive with others in the same type of role.

These key employees may be managers who are one of the few people that can run your company, or skilled staff in an industry that has a shortage of them. Potential buyers may be put off if they need to hunt for skilled staff that are near-impossible to find in the area.

Make sure that all your employment contracts, policies and other documents are up to date. If they aren’t compliant with current legislation, you could leave yourself open to a legal claim. Potential buyers can see this as yet another reason to bid below your asking price.

 

Have plans for the future

If you’re preparing a company for sale, it may seem like a waste of time to have plans in place for its future. Buyers though, will appreciate any plans you may have, and will almost certainly be interested in hearing them. A good business strategy may even seal the deal for some.

If you have any documentation or research relating to future plans, these will be useful too. Explain to any interested parties how their purchase could be even better with a little work.

 

Have any equipment serviced

If your business uses expensive machinery, buyers may be nervous about the condition it’s in, lest they have to replace it. By keeping up to date with regular servicing and keeping receipts for any repairs, you can ease any concerns and give an idea of how much certain fixes cost.

If your machinery is dated and you find it difficult to source new parts for it, you’ll need to make a call on whether or not to replace it. You may feel this is too costly, and have confidence in your current equipment being in good enough condition to attract a sale anyway. In these situations, it’s perhaps prudent to see if there’s sufficient interest in the business before paying for a costly replacement machine.

 

Keep your plans confidential

It can potentially take a long time to secure a buyer, and longer still to complete the deal. This means that you’re best not to divulge the fact that you’re looking to sell too early. Staff can react negatively to a business sale and look to jump ship if they think there’s any chance of it folding.

Likewise, you may find that others may be wary about doing business with a company that is up for sale. Some may be worried that you’re selling because the company is failing. This means that suppliers can be concerned that you won’t be around to pay their invoices, while customers may worry that they’ll have no recourse should anything go wrong.

 

Nurture relationships with employees and rival firms

Many businesses put up for sale are bought by either employees or competitors. You may already have an idea of which staff members would be interested in buying the company from you. With confidentiality in mind, you’ll need to trust that they won’t leak this information to the rest of your workforce.

This is especially important when it comes to approaching competitors about a potential sale. News of your intention to sell is likely to spread once uttered to a rival. Occasionally though, business owners enjoy strong relationships with rival company owners, and can leverage these to enquire about a potential sale.

 

 

Look at your tax options

Selling a business will incur certain tax obligations along the way. The amount you’ll have to pay depends on several factors such as the sale structure you opt for. If you look at the tax situation early on, you may be able to save yourself a significant sum of money when selling. It pays to have a specialist advisor handling your business sale for instances such as these. The amount saved in tax alone can more than offset any charges a specialist service charges.

 

Hire an expert business sales team

The tax situation above is just one of many aspects that a specialist team can take care of during a business sale. Hiring the help of a specialist can provide you with a much better chance of selling, and a much better price when you do secure a buyer.

Our own business sales service puts your company in front of multiple high-quality investors that we’ve built good working relationships with. We know what buyers are looking for, so can provide guidance to make your business as saleable as possible. Using a specialist service removes an incredible amount of stress from business owners that already have plenty to contend with.

 

Are you preparing a company for sale?

We’ve helped countless clients to get the best possible price for their business. Selling a company can be a complex affair, and by enlisting our help, we can help you to not only avoid common pitfalls, but also guide you toward a sale you’re happy with.

Call us on 0800 975 0380, or email [email protected] for a free consultation. There’s no obligation to use our services, and your calls or correspondence are completely confidential.