This is a question you should ask yourself, whether you have been approached by buyers or not. Being ‘sale ready’ can have a material difference to the level of buyer interest, the amount offered and ultimately the successful completion of a sale. Being ‘sale ready’ also means that you can act quickly if someone knocks at your door.
What do buyers want?
Business owners are very clear on the expectations from clients of their own product or service, but not as clear on understanding how a buyer may see their business.
Buyers want certainty. Primarily, they want certainty surrounding the current value of your business and its outlook. They gain this certainty by accessing quality financial and other business information that accurately paints a clear picture of your business, how it works and how it interacts with clients, employees and stakeholders alike.
The more certain a buyer is about the risks and rewards of an acquisition, the more likely they will submit an offer that adequately values your business. This often results in a higher price and more favourable contract terms.
Conversely, a lack of clarity equates to more risk for the buyer. This is likely to result in an undervaluation of your business, deferred consideration payments or onerous contract terms. Ultimately, if the buyer perceives the risks to be too great, they are likely to walk away.
Where do I start?
It’s not always easy for a business owner to see the value of a business they have been so closely attached to for many years. As an experienced M&A specialist, there are several ways I can identify and grow the commercial value of your business in preparing it for sale.
The following 12 recommendations make up the foundation steps of preparing a business for sale. Working through these steps will certainly give you a head-start in beginning the process should the opportunity arise.
Do you have a business plan?
A good business plan has benefits whether you are planning for sale or not – make sure it is kept up to date and all key staff are adhering to it and working towards its goals.
Are your business’s processes and procedures recorded and up to date?
Document the major operating policies and procedures, including accounting policies (recording of WIP, cut-off procedures, accruals and provisions, calculation of long service leave etc) and ensure the accounts reflect these procedures. A potential buyer will need to understand how the figures have been prepared before using them to value your business.
Are all records and registrations up to date?
Ensure all your records and registrations are up to date including insurance policies, business name and ASIC records, right through to bank signatories and software subscriptions.
Corporate and Legal records
Is the corporate structure appropriate for sale?
Make sure that you have all the details correctly recorded in a copy of the group structure. This should record the legal structure of each entity (i.e. company, trust or partnership) and the name and percentage of ownership of each shareholder. There is no ‘right’ structure for sale – having complete information of the ownership structure is more important at this preliminary stage.
Have tax returns and indirect and employment taxes been lodged and paid on time?
Ensure that you have a recent extract of your ATO accounts for all entities involved.
Does the business own any intellectual property?
Make a list of all intellectual property including trade marks (registered and unregistered), copyright, business names, licence agreements, and confidentiality agreements that are owned, used by, or to which the company is a party.
Are accounting records maintained and accurate?
Ensure that your debtor, creditor and inventory registers are accurate and reconcile to the balance sheet and that a breakdown of revenue/sales by customer, product and division all reconcile to your profit and loss statement.
What are the normalised earnings?
Ensure that your accounts identify one-off and abnormal revenue and expenses and provide supporting documentation and accounts that clearly explain their existence.
Have you prepared forecasts and cash flows?
Ideally originating from the Business Plan, forecasts are useful in tracking the direction your company is heading. Provide details supporting short to medium forecasts clearly explaining all assumptions and providing evidence for assumptions where possible.
Customers, suppliers and employees
What is the spread of customers and suppliers?
Next time you are exporting your quarterly or monthly financials, include a breakdown of annual sales per customer, region or site and do the same for the purchases made from the top ten suppliers.
Key Customers and Suppliers
Prepare and review the details of key trading terms and make sure they are up to date and adhered to. In your regular financials include a breakdown of annual sales to key customers and purchases from key supplier groups.
Are contracts in place with key employees?
If not, what are the reasons that they will stay post-transaction? Ensure that you are up to date with employee schedules including start date, position, current remuneration, and leave (annual, long service, and personal) balances.
Completing the above will put you in good stead to ensure your business is sale ready. To learn more about improving the value of your business and how to manage and address the issues that reduce its value, contact one of our specialists below to discuss your situation.