The decision to sell a business is not one which is lightly taken by any entrepreneur. The all-consuming nature of running a business cannot be adequately explained to someone who has spent their life working for other people (which presents a whole other set of very real challenges).
Being a company owner takes over so much of our day-to-day existence that it regularly interferes with our role in the lives of others as partners, parents, friends, and family members.
The amount of work and the demands on your time actually increase whenever you take a business to the market so there are significant personal and professional advantages for you in planning the process as much as possible in advance.
In this article, we cover four of the most important things to think about when preparing your business including:
● why running your business well should be your number one focus even though you’re trying to sell it
● implementing the highest standard of regular financial recordkeeping
● protecting what your company owns and proving ownership
● the advantages to building your own personal data room
1. FOCUS ON RUNNING THE BEST BUSINESS
What makes a business less sellable is when its owner(s) and senior management team are too distracted by the M&A process. They then lose sight of the fact that they have to keep the company they’re trying to sell profitable and sustainable.
Ideally, you will have delegated most of the day-to-day decision-making functions in the business to your senior management staff – this is important because many acquirers hesitate buying a company whose profitability is too dependent on its owners.
If you haven’t started delegating yet, understand what information you need to pass onto your senior staff members and, following a period of training and mentorship by you, empower them to make the decisions in your absence.
Take leadership and control over your part in the process of selling your business but stay on top of the ongoing performance of your business and make yourself available to senior managers if they need your support.
2. IMPLEMENT THE HIGHEST STANDARD OF REGULAR RECORD KEEPING
You should expect the accountants on an acquirer’s professional advisor team to want to inspect every aspect of the financial operation of your business.
Although many businesses now keep their financial records up to date regularly on online accounting and bookkeeping platforms like Xero, they are often still not updated frequently enough or in enough detail for meaningful analysis by the acquirer’s accountants.
Consider employing the services of a bookkeeper to go through all of your recent financial records stretching back over three years making sure that the information stored is accurate, reliable, and sufficiently detailed so that the acquirer’s accountants can understand expenditure as best as possible.
You may also wish to take on a part-time financial director with experience in :
● M&A transactions to oversee the process of updating historic records,
● putting in place a system with which staff can keep current financial records up to date on a daily basis, and
● producing management accounts and other financial reports an acquirer’s accountants is likely to want to see.
3. PROTECT WHAT YOUR COMPANY OWNS
When an offer has been made for your company and the deal enters the due diligence stage, other members of your acquirer’s professional services team – their solicitors – will want to ascertain exactly what your company owns so that the buyer knows exactly what they’re purchasing.
You need your solicitors to establish in advance of the due diligence process that your company owns its trademarks, patents, copyrights, proprietary technologies, databases, and so on. If necessary, ask your solicitor to file any documentation with the relevant authorities to further strengthen your company’s ownership rights particularly over your intellectual property.
You will almost certainly need to consult with overseas solicitors if your prospective buyer is based abroad because their headquarters are likely to remain in that country and they will only be subject to the laws of that country and not the laws of the UK.
4. BUILD YOUR OWN VIRTUAL DATA ROOM
Your historical and current financial records as well as proof of the company’s ownership of its intellectual property should form the initial basis of your company’s virtual data room. In previous decades on M&A transactions, all documentation and paperwork related to the acquisition of a company would be held inside a secure room (a “data room”) within your solicitors’ premises. Fast forward to today and data rooms are now all virtual – they’re hosted online on secure, password-protected servers.
During the due diligence process, your acquirer’s legal and accounting professionals will make almost constant demands for information on every aspect of the business’s finances and operations. A failure to provide accurate information fast enough will imperil the chance of the deal going through so being ready for every conceivable request for information is of critical importance.
When you appoint a solicitor, please make sure that they have experience in M&A and ask them as soon as possible to prepare a checklist of the documentation your acquirer’s professional team is likely to need.
PREPARING YOUR BUSINESS FOR SALE – SPEAK WITH AN M&A EXPERT
Compared with any other financial transaction in your professional or personal life, nothing will be more complex or time-consuming than the sale of your business.
Of course, that’s the way it should be. A business, particularly when it passes the £500,000 turnover level, becomes a complex financial and operational entity which, because it does not have to make its activities and results known in the way that a public limited company does, is opaque to the rest of the world.
Speak with an experienced M&A advisor at IBA Corporate, tell us about the business you have, and let us know what you want to achieve from the sale of your business. You can call us, email us, or fill in the contact form on our website.