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Seven Questions You Should Ask Before Deciding To Sell Your Company

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Before attempting to sell their company any business owner needs to think through a number of important questions.

Selling your company should never be a spur-of-the-moment decision. You should take time to think through the timing of a sale, if the market is right for a sale, and if your business is in good enough shape to sell.
 
The Seven Questions You Should Ask Before Putting Your Company On The Market.
 
Is my business in good shape to sell?

It usually takes a couple of years to get a business ready to sell. You need more than one year’s accounts showing the full profitability of the business to get maximum value. Writing off dubious inventory, tidying up uncollectable trade debtors, and getting non-contributing family members off the books should be done well in advance. Getting premises in good decorative order, refreshing the website and updating promotional literature all take time.

Is it the right time to sell?

Avoid selling when your business is on a declining trend, or as has recently suffered an adverse event such as losing an important customer. Aim to sell when the business is at the top of its game. The temptation is to hang on because you are making good money – but this is often a mistake.

Is the market right in my industry?

Selling a home improvement or construction company showed a good return in 2007, a couple of years later it would have lost at least half of its value. Of course the financial crash was an extreme event, but you should certainly look to sell when your market sector is on a upward trend. When a market is growing buyers will be confident about making a return on a deal, and more likely to have the cash flow to fund a purchase.

How is a buyer going to value my business?

The starting point of any business valuation will be a multiple of profit before tax. Private companies are often managed to minimise taxes rather than maximise profits and this can depress the price achieved. Paying a little more tax in the years before sale can pay off handsomely. To save 20% Corporation Tax you might risk losing three times or more of the value of the tax write-off in the selling price.

Are there any potential obstacles to a deal?

Unresolved issues have real potential to derail a promising offer. Are there legacy minority shareholders that might prove obstructive? Are all the intellectual property assets – patents, trade names, domain names – owned and under the control of the company? Do leases or commercial contracts have onerous change of control clauses? Try to think through your potential deal breakers and get them resolved in advance.

What advisors do I need to help me?

It’s important to get the right help to organise the sale process and structure the deal. Get advice from your accountant about tax efficient deal structures before there are offers on the table – it might be too late by then. Find a lawyer that specialises in company sale and purchase contracts. Appoint a business broker with a solid track record selling companies of your size and type.

What help will the buyer need to secure the goodwill in the company?

Agreeing to stay on for a few months after the sale can help to move a buyer towards closing a sale. You need to think through how long you might be prepared to stay. The buyer may perceive your sticking around as reducing his risk and increasing the value of your company.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
We welcome comments on posts, and questions from our readers. Use the “Leave a Reply” box below. We answer all reader questions within 24hrs. If you would like to be informed about new posts on the theme of selling a private company click the “Subscribe” button at the right hand side of this page.

One comment on “Seven Questions You Should Ask Before Deciding To Sell Your Company

  1. Chris,

    Couple of good practical points you make. Not sure exactly sure I follow your reasoning with the leaving growth opportunities. Buyers just don’t seem to want to pay for opportunities that have not been exploited yet – exception might be technology and pharma industries.

    Robert

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