How to improve the sale price of your business
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Published: 24 May 2016
In the beginning...
Many of us start a business and happily plough our furrow without thinking long-term as to what needs to be done to make it saleable.
I know that when I started my practice 35 years ago, my main concern was to make sure that the mortgage was paid at the end of the month, rather than the sale price for the business so many years hence!
But as the years go by and you build up a customer or client list, start to take on staff, move out of the home into an office- if only to keep peace in the family, you have become an established business. In some cases, the business still remains at home, since you are earning sufficient net income to finance the lifestyle that you and your family enjoy.
Now you have spoken to your IFA and he has told you what you need to save for your retirement in the form of pension contribution, or property investment, ISA’s and cash savings. But what about the sale price of your business? Apart from exceptional circumstances, buyers will not be flocking to your front door to buy the company: you have to work out a business plan to sell it. Yes, just like all those annoying and clever business gurus (sorry- management consultants!) who tell you how to plan your business career in the first place!
The good news is that, if you plan your approach to the sale of your business earlier rather than later, you will find it easier, even though there may be a few surprises on the way. Or to put it another way, the plan should be flexible to cope with changing circumstances. It can take up to two years to sell a business or company.
Here are five pointers to enable you to improve the sale price or net sale proceeds of your business:
1. Create a competitive culture
Many business owners look no further than their own connections to find a buyer. This can considerably reduce the prospect of achieving a substantially higher price for the business, as you are dealing with one opportunity only. If you engage a reputable sale agent to attract competing buyers, your reward could be anything between 2 and 5 times (or even more) the price originally offered by a single buyer.
2. Make them start the bidding
You should not include the sale price of your company with advertised details of its operations and financial summaries. Offers should be invited from buyers after they have carried out their due diligence checks. Otherwise you will not know if you have been offered the highest price.
3. Make an opportunity out of a problem
It is important that you are open in your negotiations and “do not sweep anything under the carpet”. Otherwise it will only come back to bite you. Being open in negotiations enables you to state that a particular aspect of your business needs attention or to be addressed and this has been taken into account in the price that you are prepared to accept. In fact it may be something that the buyer may well be able to resolve, which in turn could increase the company profits and the price in the eyes of the buyer!
4. Do your review first
Like painting and decorating, selling a business is all in the preparation. That means critically reviewing all areas of your business and not just looking at last year’s financials, but reviewing every aspect, including sales and marketing, margins on sales, supplies, employees and overheads so that they will withstand the scrutiny of the buyer and not allow him the chance of reducing the sale price.
5. Taxing considerations
If the business is incorporated, shares in the company are normally sold in exchange for the saleproceeds. This is the simplest and most tax efficient way. If the buyer wishes to “cherry pick” assets out of your company and leave the company in your ownership, this can be more tax costly for you and, sometimes, the buyer.
Instead, negotiations may encourage the buyer to purchase the company shares at a lower price and still leave you both better off by courtesy of HMRC!
David Cane of Sundial Tax & Finance Ltd helps business owners gain the best price for their business. If you would like to discuss your exit plan he can be contacted on 0330 122 8450 or 07749 080 806 or email.
