Things to consider when selling my business?

Selling a business requires careful planning, understanding the value of your business, and preparing for the transition. Many business owners focus on the sale price but overlook other critical factors that can affect the outcome and their future. This post explores key points to consider from a financial perspective when selling your business to help you make informed choices and achieve the best possible results.

Understand the true value of your business

Before putting your business on the market, you need a clear picture of its worth. Many owners overestimate their business’ value, which can lead to missed opportunities or prolonged sales processes. Naturally a vendor would attribute more value to their business than what the market would price as it is a reflection of their prolonged efforts, sacrifice and risk taking over extended periods of time.

• Get a professional valuation: Hire a qualified business appraiser who can assess your business and provide a robust valuation to align your expectations with what the market it pricing similar business’ for.

• Consider intangible assets: Customer relationships, brand reputation, and intellectual property can add significant value beyond physical assets.

• Review recent sales of similar businesses: This helps you understand market trends and set realistic expectations.

  
  

Knowing your business’s value helps you set a fair asking price and negotiate confidently with buyers.

Prepare your financial records and documents

Buyers will want to see detailed financial information to verify your business’s performance and potential risks or ‘red flags’. Having organised and transparent records speeds up the sale process and builds trust with the potential buyer. Financial records which are not organised or in accordance with accounting principles and limited transparency in a sale process can significantly slow down the sale process and reduce the potentials Buyers confidence and ability to make an informed decision.

• Clean up your accounting records: Ensure your numbers are accurate, up to date, and in accordance with generally accepted accounting policies.

• Gather key documents: Once the offer has been accepted and the due diligence phase commences the buyer will request a significant amount of information from you to ensure they make an informed decision. Don’t leave this to the last minute, preparation is key.

• Consider Vendor Financial Due Diligence: The sale process can commence months or even years before any form of negotiation takes place. A Vendor Financial Due Diligence (“VFDD”) Report is prepared by an independent advisor providing comprehensive analysis into the Business’ normalised earnings, historical financial performance, cash flow, working capital, net debt and financial position. It is initiated by the Vendor and is used to accelerate the due diligence process as well as bring to light the red flags or deal breakers that a potential buyer would uncover during due diligence. Uncovering any potential red flags or deal breakers as part of a VFDD gives the Vendor an opportunity to rectify these issues which could have detrimental impacts to earnings and the valuation.

How can PCM Advisory help?

We can provide:

• Vendor Financial Due Diligence: our specialist team can undertake a comprehensive analysis of your business’ finance function and identify potential red flags or deal breakers which you can then manage before the potential Buyer can use them as leverage as part of the negotiation process.