Is your business sale-ready? Here’s what you need to know about selling your business.

For some business owners, generational succession is not on the table, either because no family member wants to continue with the business or because doing so might turn the succession process into a stressful dispute between your loved ones. Therefore, selling the business becomes the most appropriate option.

Getting your business ready to sell simply means, getting the ‘house in order’. A range of strategic, operational, financial, legal and other preparations come together to enhance the attractiveness of your business to – and widen the pool of – potential buyers.

Depending on the size, and complexity, and ‘transaction readiness’ of your business, the inward focus of getting sales ready can take anywhere from 6-12 months. This just means, if you’re considering an exit you should start the journey now. All with a view to maximising your exit value, terms and conditions.

So, how to make your business ready to sell? We’ve previously discussed the 10 steps towards selling your business. In this article we highlight some of the areas you might want to address so you can truly call yourself ‘sale ready’.

Strategic and Operational Readiness

Clear Strategy, Direction and Vision: You need to have a sound strategy and clear vision that can be easily communicated to – and understood by – interested buyers. You should also be able to show that you are, in fact, following the strategy and that the direction of the business accords with your vision for it.
Robust Management Team: A strong team of management will ensure that business-as-usual is a possibility, even after you’ve left. This reduces the risk to the buyer and given the inverse relationship between risk and value, increases your exit value. It also reduces the likelihood that the business will handcuff you after the sale.
Operational Efficiency: This is about making sure that the business turns revenue into profit and has the potential to scale effectively. Think integrated systems and efficient, well-documented processes. The sooner you address this, the sooner it will show up in your results and enhance your exit value.

Financial Health

Maintaining Complete Financial Records: Accurate and transparent financial records are essential to demonstrate your financial health. Potential buyers require insight into your current financial position and historical performance to assess trends, compare actual versus budgeted outcomes, and make informed projections.
Adherence to Accounting Standards and Audit: During due diligence, the accuracy of your financial statements undergoes scrutiny. Therefore, the presentation of financial data is crucial. Verify correct allocation of assets and liabilities, adherence to accounting standards, and accuracy of note disclosures. Consider engaging an auditor to provide third-party assurance on the accuracy of financial statements.
Emphasis on Profitability: Profitability signals robust financial health. It assures potential buyers of the reliability of your products or services in the market, enabling confident planning. Consistent profitability reduces risk and enhances business valuation.
Importance of Strong Cash Flows: Strong cash flows are vital for business sustainability. Reflect on the implications of weak cash flow scenarios to understand their impact. Efficient cash flow management, measured by the cash-to-cash cycle alongside margins, is crucial. A shorter cash-to-cash cycle is generally beneficial, provided it does not entail significant costs like large early-payment discounts.
Advantages of Diversified Revenue Streams: Reducing reliance on a few key products, services, or customers mitigates business risks associated with market changes, competition, or regulatory shifts. Diversification of revenue streams enhances business resilience.
Significance of Accurate Forecasts: Alignment between actual and budgeted performance inject confidence in management and future performance forecasts, which are critical considerations for potential buyers.

Case Study: Client sells company for an estimated €100m in cash and shares.

Legal and Compliance

Documentation: Make sure all legal documents can be located and that they are current. Check that they have been signed and dated. Originals are always better than copies. Think commercial contracts, leases and employment contracts among other things.
Agreements: Consider whether agreements are an asset or a liability. For example, a long lease with a series of options might be a good thing if your location is important to the continued, profitable, operation of the business. If planning ahead, you may have time to negotiate new agreements, or exit agreements as the case may be.
Change of Control: Ensure you know what agreements say about transferability and/or change of control. These provisions can have a significant impact on your ability to sell, as well as decisions about whether to sell the business or maybe the company that operates it.
Intellectual Property: If intellectual property holds value in your business, ensure your business properly documents it and, where appropriate, protects it. Ensure that your business clearly owns the intellectual property and holds it in the right name so you can include or exclude it from the sale as desired.
Compliance: Ensure that your business is compliant with all of its obligations. If unsure, engage your lawyer and your accountant to perform a review. Check for obligations in areas such as tax law, employment law, privacy law and industry regulations to name a few.

Case Study: sorting a complex business sale.

Market Position and Competitive Advantage

Customer profitability: Repeat and long-standing, active customers indicates that future revenues are likely to materialise. Hence, less risk and greater value. Formulate strategies to retain your best customers and where necessary, re-activate their buying behaviour.
Customer profile: Who your customers are may also carry some weight. Having big, stable customers reduces the risk that they will exit as customers because of their own struggles. Buyers may also think they can use that relationship to cross-sell their other products and services.
Branding: A strong brand, competitive advantages and the ability to command an attractive price/margin makes your business more attractive. Spend time to build your brand, maximise your competitive advantages and secure fair prices in the market to give buyers confidence about the future of the business you are selling.

Demonstrably Strong Systems of Corporate Governance

Roles and responsibilities: What does your organisation chart look like? Which functions fall to which roles? In all of the circumstances, does that make sense and does it facilitate (or hinder) the continued prosperity of the business? Who has power? What checks and balances exist?
Dependencies: Have all necessary functions been identified and are they the clear responsibility of someone in the organisation? Which functions rely on other functions? Which functions do you fulfil and can someone else handle those functions when you exit the business?
Accountability: Have you identified the critical success factors in each part of your business? Are these factors aligned with KPIs, and do they correspond with the performance hurdle rates you are aiming to achieve? How do you assign, measure, and manage these accountabilities? How do you report them and to whom?
Meetings, agendas, action items: What are the communication loops that exist within the business? Are they efficient and effective? Do they drive action? Who has ultimate responsibility? Who has oversight?
Safeguarding the assets: How does the business safeguard it’s assets? Are they accounted for? Can they be identified? Do you know where they are? Do you know what condition they are in? Are they properly maintained?
Risk management: This could be its own category, such is its importance. What process do you undertake to systematically identify, assess and deal with risk? Is this well documented? Can you demonstrate progress? Do you have sufficient, appropriate insurance cover?

Environmental Performance

How does the business measure and manage its environmental performance? What processes exist to identify, assess and mitigate its impact? What processes exist to seek ways of actively reducing its impact? Five years ago, this might have been considered wishy-washy, feel-good nonsense. Today, more and more investors see it as not-negotiable.

Preparing for Due Diligence

Gather your documents: Your adviser will want to set up a ‘data room’ for the purchaser and their advisers – a virtual library of all of the documents that together, tell, support and prove the story of your business. So, those documents need to be available, accurate and kept up to date. If you don’t know where they are and who has them, this is your chance to find them.
Address any issues: Is there anything missing? Are there any red flags? Are there any deal-breakers? With enough time, planning, and effort, you can address almost anything.

Making a business ready to sell is about ensuring that the business is attractive to potential buyers from all angles—strategically, operationally, financially, and legally. The goal is to demonstrate the business’s value, potential for growth, and resilience, making it a compelling investment for the buyer.

Engaging with experienced advisers can help navigate this complex process, identify areas for improvement, and implement strategies to maximise the business’s value before going to market. If you stay on task and have the backing of a great advisory team, you can enjoy the process and be ready to start your after-business life. Contact one of our trusted business advisors if you’d like further information about selling your business.