Introduction
2024, and heading into 2025, is a good time to be selling your business – the appetite for SME businesses has fully returned and dealmaking is firmly back on the strategic agenda of larger companies. But the question on the mind of every business owner is how to sell my business for maximum profit, or to put it another way, the best price and terms.
Here we share our insights from over a decade in business, and for some of us, over three decades in the industry…
Understanding Your Business’s True Value
It is important to determine a realistic valuation range to maximise profit. It’s worth noting, this figure should never be used as a ‘price tag’. Instead, it’s purpose is to help you understand what maximum profit would actually look like and to provide a framework to assess offers against. For more on this topic see our blog What Is My Business Worth?
Value is more than just an accounting exercise and shouldn’t be reduced to 5x profit – although many people do. Real value is driven by the opportunity your business represents to the acquirer, growth, skills, new markets etc… and overarching all, the risk profile of the deal.
Preparing for Sale: The Essential Checklist
Properly preparing for the sale has a significant impact on the likelihood of completing a deal and the value you are likely to realise at the end of the process. Failure to prepare well is the number one cause of stalled or disappointing business deals.
Are you ready? Before focusing on the business, ask yourself if you are ready to sell. You may have a compelling reason to sell, but do you know what you plan to do next? Do you know how much you need to realise from the sale? Have you thought about what you would like to happen with your staff post-sale? These are all questions only you can answer, but it’s worth knowing the answers before starting the journey.
Is the business ready? Assessing business readiness is something a third-party advisor can and should help you with, after all it’s in their best interests. In general, business readiness falls into three categories:
- Documentation: Ensure that you have all the necessary documentation to complete a due diligence process. Make sure that your contracts are up to date, your financial records are clear and easy to interrogate, and all required documentation is readily available. It’s crucial to have these things prepared in advance, any delays in the due diligence process could impact realised profit from the deal.
- Red Flags: Be mindful of potential red flags that could affect the sale of your business, such as financial inaccuracies, declining sales, unresolved legal issues, ownership of intellectual properties, high staff turnover, and over-reliance on a single customer. These are generally things that it is worth taking time to address before going to market.
- Ensure Transparency and Accountability: Some things don’t raise red flags but may be queried by an acquirer. What’s crucial is to be open and honest about these and, where appropriate, demonstrate that you have taken the necessary steps to address and resolve any issues. For example, prospective buyers may be more comfortable if you can show that any ongoing legal matters are being appropriately managed and documented.
Finding the Right Buyer
When selling a business, attracting competitive bids is the ideal scenario. Generating interest from multiple qualified buyers fosters a sense of urgency and scarcity, encouraging higher offers. Properly marketing your business to the right audience, presenting detailed financials, and highlighting the company’s growth potential are essential to building this competition. Additionally, organising a structured bidding process helps keep buyers engaged and committed while positioning your business as a highly desirable and valuable asset in the marketplace.
When selling a business, the decision between using a broker or selling directly can have a significant impact on the outcome. Selling your business can be a lengthy and all-consuming process and appointing a broker or M&A advisor can provide invaluable experience. They will usually be able to identify a wider range of potential buyers, with the ability to navigate the complexities of the sale and negotiate favourable terms.
Negotiating the Best Deal
Effective negotiation tactics are essential when selling a business, as they can significantly influence the sale terms and overall outcome. Start by clearly defining your priorities – whether it’s maximizing the sale price, securing favourable payment structures, or minimising risk. Be prepared to negotiate not just on price but on the terms of payment, such as a lump sum versus an earnout. A lump sum provides immediate cash, while an earnout links future payments to the business’s post-sale performance, which can be attractive to buyers and beneficial for sellers willing to take on some risk. It’s also crucial to understand the buyer’s motivations and needs, allowing you to craft mutually beneficial terms. Stay flexible and open to creative solutions. Lastly, know when to walk away if the deal doesn’t meet your minimum expectations.
Managing multiple offers when selling a business requires a thoughtful approach to ensure you secure the best deal. It’s important to carefully evaluate each offer, considering the terms as well as the price… This is particularly important for business owners who want the deal to protect the future prospects for loyal staff or the brand itself. If an offer falls short of expectations, you can either negotiate improvements or use it to leverage better terms from other interested parties. It’s important to remain patient and not rush into accepting the first offer unless it aligns with your goals. Consider the strategic value each buyer brings to the table and their ability to close the deal smoothly. Throughout this process, working closely with advisors will help you navigate offers and counteroffers while maintaining control over the negotiation process.
Tax Considerations and Exit Planning
Early tax planning can help structure the sale to minimise tax liabilities. Working with a tax advisor can help you choose the best approach for your situation, ensuring the sale is both tax-efficient and aligned with your financial goals.
After selling a business, it’s essential to think about your long-term financial future. This means creating a solid plan for managing the proceeds from the sale. Whether you’re looking to retire, reinvest in new ventures, or diversify your investments, careful financial planning can help you make the most of your sale. Working with a financial advisor can guide you through tax-efficient strategies, setting up retirement plans, or reinvesting in opportunities that align with your goals. By focusing on wealth management post-sale, you ensure that your financial future is secure and aligned with your personal ambitions.
Conclusion
Selling your business is a major event so choosing the right exit strategy for your business requires thoughtful planning, careful consideration of your goals, and an understanding of the potential impacts on stakeholders. No matter which strategy you choose each one presents its own unique opportunities and challenges so it’s important to get it right.
To maximise the sale price of your business, you need to be thorough and strategic at every step. Focus on attracting competitive bids to create buyer interest, carefully manage offers and counteroffers, and ensure you are structuring the deal to minimise tax implications.
Negotiating non-financial terms to protect your legacy and planning for your post-sale financial future are equally important. By addressing each of these areas, you give the business the future it deserves and set yourself up for a successful and rewarding exit.
If you’re ready to explore your exit strategy options, Entrepreneurs Hub offer a free no-obligation consultation. Contact us here. We can discuss how we can help you navigate this important decision and prepare for a successful business exit. Building on our core principles of integrity, approachability, results, people, growth, and community, our proven approach will ensure you achieve your desired goals and aspirations.
