As a business broker supporting the buying and selling of businesses, we have seen a number of people taking control of their future by deciding to buy their own business and become their own boss. Over the past year, we have had a steady increase in enquiries about businesses for sale – Hilton Smythe have seen around an 85% increase in buyer enquiries over the pandemic months as compared with the previous year! This means there is a great pool of prospective buyers out there ready to snatch up your business.
If you are one of the many entrepreneurs who has decided you want to sell your business, whether that is for financial reasons, retirement or simply seeking another business venture, it is important to plan for sale early to ensure a smooth transition. It may seem like a lot of work, but it is fundamental to ensure that your business is appealing to prospective buyers. We have often seen that the decision to sell is made too late in the sales process – in fact, a majority of sellers are actually under prepared for sale. If you plan to sell in a few years, you should start preparing today.
One of the most important steps during the preparation process is to get your accounts in order, in particular trading accounts. Buyers usually request to see three years worth of trading on your income statements. If you are planning to sell in a few years’ time, it is worth informing your accountant now so that they can advise on how best to present the income statements for your business. Buyers will usually be looking to see profits, long-term client base and consistent revenue growth. You will likely be scrutinised about your accounts, so get to know them inside out. You should also be prepared to explain your trading figures covering the COVID pandemic in detail too.
Alongside accounts, you should look to get other paperwork in order. A key file containing tax returns, VAT returns, licences, leases, details of assets and supplier details will save time further down the road. We also recommend putting an anonymised list of staff including details of age, pay and length of service. If your business is a limited company, double check that all filings with Companies’ House are up to date. Using a business broker can help you to manage this, guiding you through this process for better outcomes.
Make sure your business stays profitable for a few years before sale. In order to add value to the business, manage the multiple a buyer uses against your profit figure. Don’t slash your costs and increase your prices for a short term gain. Another key factor in managing the multiple is monitoring your supplier and customer profiles. If you are at the mercy of one big supplier or one big customer, losing them could seriously impact your business, which is a risk many buyers are not willing to take. If you can mitigate this risk, you are likely to see a better multiple.
Finally, think about tax. Particularly if your business is a limited company, you will want to seek early tax advice so you structure a future sale and benefit from as many reliefs and allowances as possible.