SELLING A BUSINESS: THE PROCESS

In order to maximise the value of a business in advance of an exit, there are several key aspects to be taken into consideration.

1. Understanding the Process
The disposal process should begin in the years before the business is formally marketed in order to ensure that the values is maximised. Then, sales documentation will be drafted - initially ensuring confidentiality so as not to weaken any negotiating position - to generate sufficient interest from potential acquirers before formal negotiations take place. Formal negotiations regarding price, payment terms, transfer of assets, will take place between the vendor, acquirer and their respective advisers. Heads of terms, outlining the key terms of the deal will then be drafted and negotiated. The acquirer will ensure adequate funds are in place, while the funder is likely to request due diligence be performed on the vendor business. A handover period may be agreed in order a smooth transition throughout the change of ownership.

2. Valuations Methods
Depending on the type of business, valuations can be based on the historic level of dividends paid, cost of setting up a similar business or more commonly, the net asset position of the business (particularly for businesses heavily utilising property or plant/machinery) or a multiple of earnings. Valuations are inherently subjective and are ultimately determined by how much the vendor is prepared to sell for, and a willing purchaser is prepared to buy for.

3. Understanding the Maintainable Profit Levels
The earnings figure upon which the valuation is based, is applied to a multiple, used to determine how long the business will take to cover the cost of the acquisition. When calculating this 'maintainable' earnings figure, any exceptional or non-recurring costs or income streams should be removed. As such, in advance of any business sale, unnecessary or excessive expenses should be kept to a minimum in order that the accounts portray an accurate reflection of the business's trading position.

4. Adding Value to the Business
Look to undertake a number of business analysis exercises such as a SWOT analysis. Work to minimise external threats and overcome internal weaknesses while capitalising on strengths and opportunities. Try to ensure profit margins are upheld, staff levels are appropriate, people remain motivated and overheads are monitored.

5. Potential Acquirers
There are a number of categories of purchaser open when considering the sale of a business, with a range of interests in pursuing an acquisition: Employees (through an MBO), customers, suppliers, private equity firms or even an unknown, unconnected party. There are advantages and disadvantages to most of these categories, dependent on the specific circumstances of each business. When arriving at a final price for the business, it is better to negotiate with and invite offers from more than one party in order to generate a competitive bidding environment.

6. Engaging with Professional Advisers
A range of advisers will help to ensure all considerations are taken into account throughout the disposal process. An accountant can help to value your business, identify and filter potential buyers, produce an information memorandum outlining the key selling points, advise on the tax aspects of the due diligence requirements. A commercial lawyer will ensure that all relevant assets, liabilities and responsibilities are adequately transferred. In addition, liaison with the business's bank may be appropriate should bank facilities exist.

Who to Contact
For further information or advice, please contact Gerald McLaughlin, Corporate Finance Manager, on 0141 942 0722.