by Ian Campbell
Director & Chartered Financial Planner
One of our clients recently said that the first time he spoke to AAB Wealth was the first time that someone asked him how he wanted to spend his money when he was 90, and as a result made him “think in a whole new way about how to sell my business and the need to plan my retirement.”
There are many reasons as to why shareholders contemplate selling their business. In our client Alan’s case he was considering retirement, but others may be reassessing what is important to them as a result of the events of 2020. Whatever the reason may be, the consistent objective of any sale is to ensure the value of the business is maximised, which includes what your personal financial position will be like post-sale to support your spending habits in the decades to come.
The Corporate Finance team at AAB have been recognised by the Scottish Business Insider for the last 15 years (2005-2019) as the top dealmakers in Scotland (in relation to deals completed), meaning they have significant experience, and a wealth of knowledge on successfully completing a transaction, and what obstacles may need to be overcome.
Getting your business ready for a sale can be complex, so the team have provided 8 key areas to consider to make sure you and your business are in the optimum position to sell.
Are you ready to sell?
- Strong financial performance – past, present and future
- A strong management team and clear succession plan
- A clearly defined business plan, illustrating growth opportunities and visibility of future income
- Experienced, loyal and well incentivised employees
- Industry knowledge and expertise
- Strong brand and good reputation
- Efficient and effective internal systems and operations
- Robust management information for decision making
How many of these items could you tick off your list?
Have you considered an exit strategy?
Whatever the motivation, the decision to sell your business, when and to whom, is one of the most important financial decisions you will ever make. It is surprising that many private business owners don’t plan their exit and are not aware of the various ways in which they can dispose of their business.
Depending on the specific circumstances, there are likely to be a number of exit routes available to the owner. The primary exit routes available are:
- Third party sale (‘trade sale’);
- Management buy - in or buy – out (‘MBI’ or ‘MBO’)
- Employee ownership;
- Private Equity sale (‘PE sale’)
- Family succession; or
- A public flotation.
The choice of exit strategy adopted and the timeframe to complete can make the difference between disposing of the business at a fair price and not selling at all.
Do you know the value of your business?
Fully understanding the value of the business is essential in allowing you to make the right decisions. There are a number of factors which should be considered as part of this process and several methodologies which can be used to value a business. More information on valuations can be found here.
Do you fully understand the sales process?
Selling a business can be a really intense process! Are you prepared for the time and effort required to conclude a deal? As part of the process owners are asked to provide lots of information about their business and they can find the process difficult as they are emotionally attached.
A solid team of advisors can provide the framework and support required for a sale, providing objective opinions throughout the process and allowing the owners to continue managing day to day operations
Will you be able to do your diligence on the purchaser?
Before investing considerable time and energy with a chosen purchaser, it is important to gain comfort on their previous track record, position in the market and financial ability to deliver.
Any business owner should seek further clarity on the interested party’s underlying strategic rationale for making an approach to ensure that the purchaser is the right fit for their business.
In addition, emotive factors, such as what will happen to employees, the future ambition of the business and direction under new ownership can be just as important as the price.
Have you considered the most efficient tax structure?
Most purchasers are prepared to be flexible to ensure that the vendor(s) can take advantage of any tax benefits available. Therefore, it is essential to seek specialist tax advice at an early stage of a potential process to assess the likely tax implications and structure the deal efficiently to minimise tax liabilities.
Do you know what your personal goals are post-sale?
“It’s not until you start to think of it in terms of how much a pint of beer might cost then that you realise you have to really plan things properly. It’s one thing to have the pension organised, but another to see if it’s enough to last until you reach age 90, for example.”
Our client Alan said this and that he was provided with a welcomed new view of retirement when he considered his future plans as part of the sales process.
Considering this as part of the sales process can help keep you focused when obstacles inevitably come up and can also help in giving you confidence in your financial future.
At AAB Wealth we are in a unique position of working alongside corporate finance, tax and financial planning experts all under one roof. Helping deliver a seamless solution. We would always recommend seeking professional advice when selling your business. If you are considering a business sale, please do not hesitate to get in touch.