Getting the timing of sale right is probably one of the most important decisions for any business owner considering the sale of a business. We have summarised below the key factors that owners should consider before commencing a sale process.
1. Are you ready mentally, to sell your business, and do you have a financial plan and a lifestyle plan? Often, business owners are not ready for the next stage in their life! Make sure you have addressed this first.
2. How much do I need to retire? In some cases, the decision can be driven more by how much you need to retire, rather than how much you can achieve. You may be pleasantly surprised that you may not need to wait another 3 years before selling.
3. Where are you in the economic cycle? Is your market sector showing strong performance and is this expected to continue, or is your market entering a difficult period? This will have an impact on valuation.
4. What does a 3-year forecast look like for your business? Ideally, you should be showing growth and improved profitability, but this will need to be supported by sound and credible assumptions. How sustainable are your sales and profits? Purchasers will conduct thorough due diligence and will look at the sustainability of your earnings.
5. Who are the key potential buyers and are they in a position to commit time to an acquisition? Knowing the agendas of your key buyers and whether they are too busy on other deals may influence your views on timing.
6. Are there key issues in your business which could be addressed now to make it more saleable. For example, securing key contracts and reducing customer concentration are two common factors that can be addressed, given time.
7. Is the management structure suitable for a buyer, or does the business rely heavily on the owner – this is a very common issue with privately owned businesses. Taking time now to address the management structure will improve the saleability of your business.
8. Tax regime – is there any likelihood that tax benefits such as entrepreneur’s relief could be changed or withdrawn. This could be a major factor influencing your view on timing.
9. Tax structuring- is your personal tax situation, including inheritance tax planning, up to date and structured as efficiently as possible.
10. Don’t leave it too late – when a business has performed well year after year, there is a great temptation to say “let’s just give it another year”. But one of the keys to any successful deal is leaving something on the table for the buyer!