Selling your business

Q. I own a medium-sized manufacturing business which, because we operate in a niche area, has attracted interest from a couple of larger players. I put any ideas about a sale on-hold during the recession, but I’m now looking to maximise the potential value of the business to sell when the upturn arrives. What advice do you have for achieving this?

A. While it’s true there’s been a significant reduction in deal activity during the recession we have completed a number of transactions for clients operating in niche sectors at levels that represented good value for the vendors.

There were some common factors in these transactions which should be relevant to your situation and will provide you with some pointers to extracting the best value from your potential sale:

1. Know where and how you make profits. It is particularly important in the current climate to demonstrate the drivers behind your company’s profitability and where future growth will come from. Well prepared management accounts, budgets and order book analysis will be invaluable for this.

2. Maintain your business’s profile. Make your business easily identifiable to strategic acquirers that are looking for businesses that will enhance their offering in particular products, services or market segments. You can’t build a reputation overnight but you can ensure that your website and marketing activity give your business a good profile.

3. Maintain your investment in people and infrastructure. Particularly tough in the current environment, but acquirers will not be attracted by businesses that will require significant day-to-day management input from them. They will prefer a business that can be left to run itself while they make the strategic decisions.

4. Do your housekeeping. Make sure that all your paperwork is in order and that relevant compliance and regulatory issues are kept up-to-date.

It is also just as important to make sure that, as a shareholder, you are prepared to sell. In particular do you have an idea as to the minimum sale price you need to achieve?

To answer this you need to know what you will do with the proceeds and what you will do with your time after the sale.

For instance if you never want to work again then it is critical to know what income you will need to achieve from investing the proceeds.

There’s certainly a lot to think about here, but there are certain things that you can and should do quickly that will put you in a better position to respond if a strategic purchaser makes an unsolicited approach to buy your business.

Above all, ensure you seek professional advice from a qualified and experienced corporate finance professional.

Rob Kenmare, corporate finance partner, Moore and Smalley Chartered Accountants and Business Advisors.