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Grooming a business for sale
By Bob Gore, corporate finance partner

FOR some business owners the sale of the business is an inevitable exit route. However, you are only going to sell your business once so there is only one chance to get it right.

Planning your exit from the business well in advance creates the opportunity of ‘grooming the business for sale’. This is not an opportunistic approach to maximising the price, but the implementation of a properly considered plan aimed at legitimately enhancing maintainable profits and addressing any balance sheet issues.

Importantly this exercise should also address any legal grey areas, for example issues with leases, or employee records and perhaps disciplinary procedures that require ‘tidying up’. Sound employee, health and safety and environmental policies also now assume such critical importance that a lack of compliance can have a significant impact on the deal. A pre deal ‘audit’ of these key areas can significantly mitigate areas of concern that emanate from the commercial, financial and legal due diligence process and consequently reduces the risk of warranties and indemnities. It is also always easier to justify the valuation of a well managed profitable business that is capable of further profitable growth, and which, invariably attracts more potential buyers.

A ‘grooming for sale’ checklist would include:

  • An assessment of management capabilities and identification of any missing skills
  • Assessment of historical and forecast profit performance, legitimate opportunities for increases in sales and margins, and the scope for legitimate cost reductions, efficiency improvements and enhancement of cash flow
  • Assessment of the market trends and competition
  • Verification of asset values and identification of ‘redundant’ assets
  • Audit of health and safety, environmental and employment procedures
  • Resolve any outstanding or potential legal issues, for example, supplier disputes, property matters
  • Ensure that all taxation affairs are up-to-date
  • Identification and confirmation of strengths
  • Actions to address weaknesses and threats; (particularly, for example, dependency on few customers)
  • Identify the issues that could increase and depress the valuation of the business

None of the above is, however, more important than ensuring that the business is not overly dependant on the owner. Sadly this is often the case and can cause potentially interested buyers to regard the acquisition as too high risk. Is the profitability and cash flow generation sustainable without the owner who has ‘built the business’? Are key customer relationships with the owner or individuals who will exit the business on sale? These issues above all else reinforce the importance of grooming for sale.

There is no certainty that a ‘grooming for sale’ exercise will increase the valuation of a business. Experience suggests, however, that it does considerably enhance the chances of a successful sale or at the very least reduce ‘surprises’ during the due diligence and legal processes that can otherwise extend the timescales and significantly add to costs.

One of the most important decisions in seeking to divest of the business is the timing. The grooming for sale process will provide strong indications of the optimum time to instigate the divestment process.

For further information on selling a business, or to speak to our corporate finance team contact Bob Gore T: 0161 817 6100 or Paul McGerty T: 01925 635 141 or E: corporatefinance@mc.co.uk

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