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Created on Wednesday, 19 December 2012

5 Ways To Prepare Your Business For Sale

This lack of foresight unfortunately leads to money being left on the table. Ryan Guthrie, Director of the Private Equity Practice, BDO USA, said, “The majority of business owners who sell their business don’t plan ahead in preparation of a sale. In most cases, a lot of things that could have increased the value of the business and decreased the risk for buyers was not done.”

So what can be done to prepare for an exit with an uncertain time horizon?

  1. Executive Management: The most essential step that a founder can take is to build out a full management team that can run the business without the owner. It takes a significant investment in time and attention to prepare a competent management team, but it’s also one of the most essential ingredients for a profitable exit. Without exception, the sale process becomes more arduous and fraught with complication if a buyer doubts the ability of the company to run in the absence of the founder. These concerns are not limited to owners near retirement age either. Young owners have little incentive to remain involved. In the case of an exiting owner, the buyer needs to come in and not only get comfortable with the business, but ensure the business will continue to grow without the owner. This increases risk greatly.”
  2. Middle Management: Larger middle-market companies often prepare for a sale by bolstering management, but far fewer companies take the initiative to develop a strong set of middle management talent. Expanding the management capabilities beyond the executive level reassures buyers and ensures a seamless post-sale transition.
  3. Financials: It is common practice for business owners to prepare an audited set of financial statements two years before a sale, but there are also financial preparations that can take place much earlier that will help ready a business for an exit. Foremost among them is the process of separating out the company’s real estate holdings from the rest of the business.   We’ve often seen owners carve out the real estate from the business and sell the business to one party and sell the real estate to a separate buyer. However, if an exit is a possibility in the next five years,we advise against making dramatic changes like relocating a factory or any other business change that would appear to disrupt a growth trend.
  4. Customers: When there is a long-term horizon of sale, it is also beneficial to look at ways to add to the sustainability of earnings. Buyers want to see customer diversification and reduce the risk of loosing key customers that would depart with the founder, especially if those customers make up a significant portion of the revenue.  
  5. Corporate Structure: It is important to examine the corporate structure of the company. There are important tax consequences that come with selling C-Corp and S-Corp businesses.  Company owners should keep the end in mind and to determine what the optimal corporate form would be for the business. “There’s not a lot you can do a year before the sale,”  “But there’s a whole lot more you can do 10 years before the sale.”

It is more crucial than ever for owners to plan ahead to maximize the enterprise value of their company. If the past several years have provided any lesson to sellers, it is that company valuations are at the mercy of the marketplace and business owners will want to be ready to take advantage of market timing.

Our sales and marketing consulting services will help you define and establish your target market, create a marketing plan and then assist you with implementing the plan. We provide the resources, skills, systems, tools and support to drive sales and grow your business in Africa.

Speak to us today, call us on +27 11 822 6253 or email us here.

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