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If you’re about to embark on the journey of selling your business, we have some key insights into the process.
Advance preparation
It can be difficult to put a timeline on how far in advance you should begin to prepare and optimise for a sale, particularly as this greatly depends on the business lifecycle.
The reality here is that you cannot start preparing early enough – ideally around two years is the standard advice.
Full or partial sale
Start-ups should consider their Exit Plans from the outset because selling doesn’t always mean a full Exit. Businesses who complete a fundraise – selling 20% of the business, as opposed to 100% – go through a process very similar to a full sale. The business needs to ensure it is organised from the outset with clear aspirations on whether you want to receive Private Equity or Venture Capital for growth, whether you want to IPO the business, or consider MBO/I’s and so on.
Depending on those aims would change the way the business processes are managed. For example, for PE investment, you would keep the management team and cost base as lean as possible and really focus on fast growth; whereas with an IPO, governance, risk and compliance has to be watertight with lots of internal processes and insight.
Plan and effect
It’s infinitely easier to sell a business when Exit prep has been undertaken in advance. The value that diligence has on a business is enormous.
When we spoke to a Big4 advisor they told us of an example of a company in 2016 who were seeking to sell a small portion of their business in order to raise capital for further growth. Unfortunately, there wasn’t enough preparation prior to the process. A vendor due diligence wasn’t undertaken and there were thousands of pages of unstructured data in the data room, which resulted in the buyer due diligence taking 5 months and costing over £1m. This impacted on the price significantly, damaged the management time and it became a very tedious and out of control process, all of which could have been avoided with prior preparation.
The Art of M&A
The Art of M&A is centred around accessing your advisor’s network and is a key resource – advisors do this every day and therefore know all the tricks of the trade and the nuances which make a difference, including the ability to drive competitor tension between potential buyers.
Bigger businesses have access to larger finance teams and the outgoing cost of appointing an advisor during the process isn’t a huge deal. Smaller businesses on the other hand need to focus on using what resources are available to them, but by appointing an advisor they’re able to avoid loss of value and time.
Adding value
Finance Directors also add a level of value both monetarily and to the process itself. They’re able to take on the business optimisation and ensure a smooth and easy transaction for all involved because in the end it all comes down to the numbers. At a high level, buyers are buying three things:
It is indeed such a critical role, the FD can end up getting pulled in many different directions, so they need to understand the process.
Final advice
If you’re about to embark on the selling journey, there are some key advice points for a successful transaction:
If you are thinking of selling your business, you can contact us to help support you through the process. Call us on 020 7717 5254 or email info@numitas.com. Download our 8-step guide for more details.
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