15 June, 2011

Private business exit: Q12. What should you do to be ready for sale?

Last time in this series on selling a mid-size privately-held business, we asked what should you do to improve your business attractiveness. This time we’re asking what should you do to be ready for sale. That might look like the same question, but it isn’t. This is about housekeeping:

  • Tidy the books 1: Clean up those overdue debtors and creditors. Get rid of that old stock you know is never going to sell. The buyers will pick up that it’s junk, and may even give it negative value because they’ll have to get rid of it.
  • Tidy the books 2: Get your personal business out of the business. The Aston Martin, the boat, that club membership, the home entertainment system that you euphemistically call your home computer. Sell them to yourself if you still want them (ask your accountant for advice). If your mistress or toyboy is on the payroll, it’s time to make other arrangements for her or him. (I’m not joking, I’ve seen it). It will make your numbers look better too.
  • Tidy the books 3: Show you’re a credible and substantial business. Consider getting your last 2 years financial results audited (by a Tier 1 or 2 CA firm, not J. Bloggs from across the street).
  • Tidy the paperwork: Get all the contracts, leases, staff records, financial records, board papers, trademarks, patents, design records into shape and tidily assembled in one place. Then get a complete set of all key information copied and put into binders and onto computer, in readiness for due diligence.
  • Tidy the problems: Do something about those ticking bombs in the business. You know what I mean. That product design issue which hasn’t blown up yet; those warranty claims which have yet to be processed; those customer and supplier disputes resolved; that argument with the taxman; the compensation claim from that employee you fired last quarter; the broken lathe. The buyers will find out about them, one way or another, and you don’t want to put them off, or worse,  be sued afterwards.
  • Tidy the place: If your business looks like a biker gang HQ, it will be priced accordingly. Make sure the site looks good. Pay your kid’s sports team to clean the outside area. Give the office a lick of paint. Get the warehouse tidy. Dump the broken furniture. Clean the machinery

There may be some costs getting your business tidy, but with your now tidy and audited accounts, you’ll be able to legitimately present those costs as non-recurring items the buyer can discount. Doing all this before you go to market means you aren’t rushed, and the buyers will see a well-run business. It will make due diligence very easy and lifts buyer confidence, which all helps when you’re negotiating the price and terms of sale.

First posted September 19th, 2008

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