Having grown and then sold my own business (a fresh-food home-delivery service I ran with my wife), I’ve seen firsthand how tough it can be to get to that point of sale — and therefore, how important it is to make the most of your sale price.
So, here are my 10 key tips to improve the sale price after getting your business to the point of sale.
1. Engage a merger and acquisition advisor
Probably the most important thing to do is engage an appropriate advisor (who, generally, won’t be a lawyer), who understands your business, as well as likely buyers, and can set up an effective sale process for you
Ideally, this process will have a competitive element, such as an auction. The process should at least ensure there is momentum which is often best achieved by having multiple buyer interest and deadlines.
It’s just like selling your property, isn’t it?
2. Sale price adjustments
Your advisors must understand the balance sheet of your business. They can advise you on the best pricing alternative for you and your business. Paying attention to the details can result in significantly higher payments for you.
Sale price alternatives include a fixed price, adjustments for working capital and net debt and balance sheet adjustments. Often adjustments are made on, or within a few weeks of, completion of the sale.
Of course, additional payments may be made by the buyer to you for the performance of the business after completion, but this can be discussed at another time.
3. Fixed price
Sometimes, a fixed price for the sale of a business can be the best outcome for all parties. Although, frequently it’s not.
If your business is continuing to grow, then it’s working capital and other assets may be getting stronger, and its debt levels or other liabilities may be getting lower.
4. Working capital
Are the receivables of your business higher than normal? If so, a buyer may pay you more for this. However, obviously, you should work very hard to collect your receivables before they are regarded as ‘bad debts’ (and effectively written off) by the buyer in its calculation of your sale price.
Are the creditors of your business lower than normal? If so, a buyer may pay you more for this, too.
It may be better from a tax perspective to leave cash in your business rather than taking it out before completion.
If you pay yourself a dividend, then this may attract a higher rate of tax than if you leave the cash in your business and the buyer increases your sale price by the amount of this cash (because, for example, of any capital gains tax discount that may be available to you).
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Try to avoid having any ‘trapped’ cash on your balance sheet, such as bonds for leased premises. The buyer might argue that a discounted value should apply to the amount of the bonds because the cash is not available to the buyer in the short term. Consider, for example, whether a bank guarantee (to be replaced by the buyer on completion) is a better option for you.
Often, all or most financial debt of the business is required to be repaid on or before completion of the sale. Try to ensure that break fees will not be payable by giving sufficient notice to the financiers (if applicable), completing on a preferred date or agreeing with the buyer to assume the liability in return for reducing the sale price by the amount of the debt (excluding any break fee).
7. Employee-related liabilities
Will the buyer assume all of your employee-related liabilities? If so, will they all be deducted from your sale price?
There are good arguments for only allowing for a proportion of these liabilities to be accounted for in the price (so that you receive the tax benefits to the buyer of the liabilities).
Can you encourage some of your employees to take their long service leave before completion to improve your sale price?
You also need to ensure other adjustments are not made that will adversely affect you, including depreciation.
9. Sale of unnecessary assets
If you have sold any assets that are unnecessary for the ongoing operation of the business, then you should try to ensure that their values do not adversely affect your sale price.
10. Tax advisors
You will also need good tax advice from a practitioner who regularly advises clients on selling their businesses. Accountancy firms often provide this service cost-effectively.
There are many other examples of ways to improve your sale price.
With good advice, attention to detail and planning, you may be able to significantly increase your sale proceeds, and sometimes in a tax-effective manner too.