10 steps to selling your business - Crowe Ireland

10 steps to selling your business

Essential steps to selling your business smartly and safely for maximum return.

10 steps to selling your business - Crowe Ireland

Selling a business is time-consuming and for many, an emotional venture. The process can be lengthy and stressful as the business owners maintain focus on the day-to-day operations to protect the value in the business at the same time as finding suitable buyer’s. Often they need to keep the process confidential and discrete to protect against loosing key staff or reducing the value of the customer goodwill.

Selling your business requires forward planning and a structured, well-thought-out process. You need to be in control of each stage of the sale from start to finish to ensure you maximum your return.

We receive many enquiries from people looking to sell their business and the following are the ten steps you should consider in the sales process.

Planning your exit strategy

It is worth planning and preparing your exit strategy as early as possible, regardless of the reason for the exit. Finding the right business adviser who understands the owner’s selling requirements and strategic goals and who can guide you through the steps to a successful sale is paramount. The adviser can also help you understand the various exit strategy options, criteria for the most appropriate buyers, the timing of the sale and the tax consequences of the different transaction structures.

Building business value prior to sale

It is important to take a step back and look at the business objectively through the eyes of a prospective purchaser. There are many attributes that will make your business appear more attractive – things like strong, long-term relationships, an effective management team, recurring revenue streams and streamlined processes.

Working with an adviser who has the relevant transaction experience and understands your business can help you build greater value in your business in the run up to the sale process.

Determine a business valuation

For many owners the sale of a business is an emotional one, it is often the culmination of a lifetime’s work. As a result, owners can often have unrealistic price expectations or are poor at identifying where the real value of the business lies. The sale process can often get derailed by sellers and buyers having completely different expectations about the value of the business.

A third-party valuation is a critical step in the process and the best way to provide a realistic and objective estimate of what your business is worth. Your business adviser is better placed to provide evidence of the value of the business which will bring credibility to the asking price.

Conduct internal due diligence

In today’s market, prospective buyers want as much transparency as possible and are performing careful due diligence. Spending time to properly evaluate and present your company’s financial and business history and future projections is a crucial element in the sale process.

A seller can avoid red flags by working with their adviser to ensure that everything is in order and that the right information is provided at the right time which helps facilitate a smooth sale process.

Finding the right buyer

There can often be a large number of potential buyers for a business and typically owners are not best placed to identify the right candidates on their own. Finding a buyer can be one of the most time-intensive elements of the process, but is clearly an important factor in ensuring a successful deal.

Types of buyers generally break down to the existing management team, strategic buyers and financial buyers, each of which will have different evaluation criteria and come with their own pros and cons.

However, not all potential buyers that express an interest may qualify. A good adviser will be able to properly screen interested parties to assess early on whether they are a credible buyer and have the financial standing to execute the deal.

Presentation of the business

Time and consideration should be given to the marketing material for the deal. A well-presented information memorandum increases a buyer’s confidence and the likelihood of a successful sale.

Your information memorandum should capture the key credentials of the business – detailing the ownership and management structure, trading performance, key growth opportunities, competitive advantage and market data.

Transaction structure

A business sale has many financial and professional considerations for the management team and owner. The purchase price is only one component of the overall result.

Every deal is different and consideration should be given to the most advantageous corporate structure for the sale. In advance of initiating the sale process the current structure should be reviewed from a legal, tax and stamp duty perspective, restructuring if necessary to help maximise the return. Reliefs such as retirement relief, entrepreneurial relief and transfer of business relief need to be considered.

A business often holds investment assets or has assets surplus to its operations that could be sold off without affecting the underlying business. To maximise financial return it is important that such assets are identified and consideration given as to whether they should be included in the sale process or not.

Negotiating the deal

Once potential purchasers have been identified and marketing material prepared, a formal approach can be made to solicit first round offers. Success from this point forward largely depends on managing interactions with potential purchasers. A strict deadline should be set from the outset to ensure competitive tension is generated.

Offers received in the first round often dictate the format of the next stage of the process – whether a second round of bidding is required or a preferred bidder is brought forward. Often an exclusivity agreement is entered into to allow the potential purchaser to evaluate the company.

In these negotiations it is important to put yourself in the purchaser’s shoes to gain a perspective of the factors important to them and how they compare to factors important to you. This will give you greater control over the process and visibility of any potential stumbling blocks. An experienced business adviser will help lead these crucial negotiations providing advice and guidance on best practice to maximise the sale price.

Finalising legal documentation

There are a number of legal contracts that need to be drawn up when selling a business. The purchase agreement will define all the details of the transaction and is the definitive document outlining the terms of the sale. It can often include other transaction documents such as a non-compete agreement or an earn-out clause where the seller remains with the business for a set period of time.

Managing the profits from the sale

Once the sale has been completed it is important to obtain the correct financial advice so you can map out your financial goals and determine how best to invest your money. It is also important to review the tax structures put in place at the beginning of the process and liaise with your tax adviser on any changes that may need to be implemented.

Our corporate finance team has extensive experience assisting SME clients prepare their business for sale and providing guidance through the different steps of the process. If you are considering selling your business, contact a member of our corporate finance team.

Naoise Cosgrove, Managing partner - Crowe Ireland
Naoise Cosgrove
Managing Partner
Corporate Finance
Partner, Corporate Recovery - Crowe Ireland
Aiden Murphy
Corporate Recovery
Gerard O'Reilly, Partner, Audit - Crowe Ireland
Gerard O'Reilly
Partner, Audit