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Spring clean your business – you never know what’s around the corner

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Thousands of SMEs will change hands this year, as large corporate acquirers continue their spree of buying up UK businesses. Whether you’re planning to sell now or not, getting your business into sellable shape could be worth millions when the time comes.

What would make you sell your company? Among business owners, retirement and lifestyle change are the two most common reasons, but a growing number of them will be forced to sell due to personal circumstances such as divorce, ill-health or simply by changing market forces. The current unpredictable political environment – as the UK seeks to negotiate its exit from the EU – may also prompt some owners to sell, and other businesses to acquire.

Update your achievements

Does your website fully explain what you do and how well you do it? Many business owners feel uncomfortable telling everyone how great they are, but you don’t have to be the worldwide number one to be attractive to a corporate acquirer.

Serial buyers of SMEs get dozens of pitches every day. If you can demonstrate that you have lots of happy customers, a skilled workforce, and a good reputation, you will start out with a stronger negotiating position.

Update your customer testimonials and employee accreditations/qualifications, and identify your customer USP – such as reliability, competitive pricing, or speed of service.

Understand your customers

A surprising number of small businesses don’t analyse sales data regularly or profile their customers. Your business may serve a select clientele of big industry names, or serve thousands of consumers around the world.  A few simple metrics on average customer spend, top selling product categories, more profitable product lines, and range of industries (or demographics) served, helps you demonstrate value in your customer base – a key driver for much SME acquisition activity.

Revisit your paperwork

Even though it can take weeks or months for an interested buyer to make an offer on a business, once you’ve accepted, dozens of lawyers can appear out of nowhere to go through seemingly every document you’ve got.

In short, your accounts, contracts, tax arrangements, certifications will come under scrutiny, so expect to be challenged and be confident on your numbers. The demands of this process can seem intrusive and/or pedantic, but is necessary to give any buyer comfort. Good information systems are the order of the day here, so spend a bit of time organising your data and documents now.

High levels of debt in your business will be a concern for a buyer, so take steps to address borrowings and other financial commitments.

Simplify your ownership

Handing out equity options may sound like a great idea for a start-up to motivate its founding staff, but can become a nightmare as you try to agree sale price and terms. A business with 30-plus shareholders controlling a significant stake can and has become a major stumbling block during a company sale process.

Either buy them out, or consolidate your shareholder structure to adjust voting rights in your favour.

Look after your uniqueness

Is your business name trademarked? Do you have any patents, copyrights, blueprints, exclusive contracts? Not having this in place often amounts to leaving money on the table. Conversely, if all this is nailed down, you will add significant value to your business just by filling in some paperwork.

Revisit your trademark jurisdictions, check any patent expiry dates, and re-read any exclusive supplier agreements to maintain the value of your intellectual property.

Start discussing a handover

Make yourself dispensable by reducing dependency on you. Delegate your management team to give yourself the best chance of a clean break after completion if that’s what you’re seeking. Think like a buyer, who can and will take the rein from day one.

Large groups often prefer autonomous business divisions these days, and they usually prefer to have someone on the inside to take the business forward.  

CHECKLIST FOR A SMOOTH SALE

  • Update website to make sure it reflects the whole business
  • Analyse sales patterns to identify your most valuable customers
  • Get your accounts in order, and check your contracts and tax arrangements
  • Trademark your brand and patent any innovations
  • Train up middle managers to take on more responsibility
  • Simplify shareholdings and structures to ensure a smooth sale

 

Posted Apr 2017
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