Putting your business on the market is a turning point in your life and one you should approach carefully. Due to the sheer number of ‘moving parts’ involved in a sale, meticulous advance planning is essential.
Having the right people on your side can be as important as having the right strategy in place. By working with BDO, you can successfully navigate the pre-sale process, as laid out in greater detail in our helpful eBook.
Taking care through the following three pre-sale stages can ensure you receive a return worthy of the time and hard work you've put into building and developing your business.
1.Preparing the business for sale
Just as smart renovations can make a home attractive to potential buyers, a few sensible structural and operational changes may improve your business' value before sale. Consulting with BDO advisers during this step is a helpful way to determine what moves are likely to have the most impact on the final sale price.
It's important to note that changes should not be superficial, as the buyer's due diligence process will determine whether your plans are workable and provide lasting value. Potential matters to address include:
- The management situation: Having a management structure that will work in your absence can reduce a buyer’s risk (and greatly enhance value).
- Capital expenditure: You may wish to avoid major capital expenditures in the run-up to a sale.
- ‘Non-recurring’ expenditures: Identifying ‘non-recurring’ expenditures is a valuable exercise so that potential buyers receive an accurate picture of your business's financial health.
- Forecasts: Most buyers will want to understand your forecasts for the business over the next year or two. Forecasts should be credible and underpinned by reasonable assumptions.
- Legal matters: To make your business an attractive target for a large acquirer, you should vet your contracts, ensuring the business has appropriate documentation associated with all employees, customers, suppliers, intellectual property and physical assets.
2.Enduring the transaction and structured sale process
Selling a business includes time-consuming administrative processes around the actual sale. While these are going on, the business must keep operating smoothly. During the period it takes to complete a sale you will have to manage the dual role of seller and proprietor.
BDO can ease the burden of managing the transaction during this stage, partnering with you to:
- Prepare the business for sale
- Engage in specialised tax planning
- Prepare the Information Memorandum
- Contact potential buyers and receive initial offers
- Meet those parties and field revised offers
- Conclude negotiations and sign a letter of intent
- Facilitate the due diligence process
- Finalise the sale and manage post-closing matters.
The vast amount of research gathering and information management associated with these steps is difficult to complete alone. Fortunately, with the assistance of a team of advisers, you can pull together the information potential buyers will likely be interested in before they even request it. Such preparedness allows you to move smoothly through the potentially complex transaction process.
3.Preparing the Information Memorandum
To move the sale process along, your business will need an Information Memorandum. Your Information Memorandum must walk a fine line between two competing objectives - portraying the business positively but with all comments being supportable in the due diligence process.
On one hand this document has to contain as much information as possible. It is legally bound to be truthful, accurate and complete. The Information Memorandum should be comprehensive enough that interested potential buyers will be satisfied with what they have found.
On the other side of the equation, it's important to ensure sensitive details aren't included in your document. This means keeping the names of your customers, your complete pricing structure, the details of your unregistered intellectual property and other points out of the information memorandum. Serious buyers will learn these facts later in the sale process.
Expert advisers can help you create a convincing and supportable Information Memorandum including key data such as:
- Investment highlights
- Business model
- Management team
- Growth strategy
- Financial performance (historical and forecast).
This document is what potential buyers will use to assess your business, so time and effort are well-spent on it.
Are you ready to proceed with your sale?
When preparing a business for sale, all steps are equally important as to not delay the process. This is why it's so important to have expert eyes on your work as you formulate a selling strategy.
Advisers from BDO can fulfil this role, using their experience to ensure the process runs smoothly.
To give business owners even more clarity about every step of the sale process, BDO has put together the Selling your business: A practical guide. Download it today to see where your business stands on the road to a sale.
If you are thinking about the ultimate exit of your business, BDO’s team of transaction advisory specialists can help you navigate a wide range of corporate transactions. To access more corporate finance resources visit our Corporate Finance Advisory & Financial Services page.
This article is part of an M&A series. Subscribe to receive further Corporate Finance Advisory insights.