Continuing the ideas that can help you get your business ready for sale. This week we focus on the Tax, Value and Timing in your business.

Tax Planning: Details of the various tax factors that you need to consider are set out in section 4 of this guide. Initial points to address include making sure that all your Corporation Tax, PAYE and VAT returns and payments are up to date. In addition, any tax losses that your company may have built up over the years may now have a value to the extent that they are available for use by the potential purchaser. Personal tax planning opportunities should be discussed with your tax adviser.

Valuation Expectations: You must have realistic valuation expectations. Valuation is important but do not let it get in the way of securing the sale.

Timing: Deciding the best time to sell your business can be a difficult decision to make. Factors to be considered when making this decision include the level of corporate activity in your industry; the state of the economy; changes in sector relevant legislation; and available tax reliefs (e.g. do you have to be a certain age to avail of certain retirement reliefs or pension planning opportunities).

It is better to sell your business on historical trends and results - they are a proven record of accomplishment that you can pinpoint and will provide you with a strong platform to negotiate from. If you have forecast a growth level of 20% for the coming year and can point to 20% annual growth for the last two to three years you can be assured of being in a more credible position. If, however you forecast 20% growth and have to justify that this is achievable by selling off part of the business, assets, cost cutting or increasing profit margins, the natural questions of potential buyers will be - “Why haven’t you done it already” and “Why should the purchaser share these potential post transaction gains with you?”

Continuing the ideas that can help you get your business ready for sale. This week we focus on the people, equipment and organization in your business.

Management Team: The purchaser of your business will be looking to acquire a high caliber management team. It may be worth reviewing your corporate structure to ensure that job titles and role descriptions adequately reflect the contribution that your management team makes to your business. Any re-structure needs finalization well in advance of an anticipated sale. A purchaser may also want assurance that the management team is supportive of your decision to sell or at least that it is likely to stay with the business for a reasonable period post-transaction. You should consider talking to management - how cooperative will they be? You never know, they may be interested in buying the business themselves.

Asset Base: Are there any assets in the business that may be of little or no interest to potential purchasers- e.g. short-term investments, under-utilized property, equipment or perhaps surplus cash? Think about realizing and removing them from the business before the sale. It is also worthwhile having all your property assets valued individually.

Restructuring: If your business has more than one division, some thought should be given to restructuring it into a number of stand-alone entities and perhaps selling these separately. Any such reorganization will have potential tax implications and other complexities associated with it and it will be important to take professional advice before undertaking any such initiative.

You should make every effort to prepare or ‘groom’ your business so it is sold successfully at the first opportunity. While the financial advisors you appoint will work with you to address issues specific to your company, there are a number of general grooming points worth considering (even before you appoint advisors) to maximize the value of your business:

Sales & Profitability: Historically, you may have been setting your prices, and thus your profit margins, at levels designed to create barriers to entry for your competition. If you are planning for a business sale your focus is likely to be short term strategies. It will be time to re-examine your market and customer base to see if higher sales and turnover levels are achievable. If the proposed sale itself is a number of years away, you should consider performing a strategic review of the entire business.

Operating Costs: You should regularly review your operating expenses but this is especially so when preparing your business for sale. You need to identify avenues to reduce expenses without affecting the operational effectiveness of your business.
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Profit Trends: Apart from current margins, a purchaser will be looking at profit trends. Buyers are looking to see stable and steady yearly profit trends. Therefore, risky projects should be avoided and longer-term contracts that may prove to be onerous should be fully considered before acceptance. Unprofitable contracts need to be reevaluated and, if appropriate, terminated, as it is quite possible they will be detrimental to the value of your business.

It is often said that most successful entrepreneurs begin to prepare their companies for sale on the first day of business. While this comment should not be taken literally, it does highlight a key point that the characteristics, which will enhance your company’s marketability, take time to develop. It takes more than a little touch-up or a coat of paint to sell your business at the price you feel it is worth. The presence of several of the following characteristics will significantly enhance your company’s marketability and make it more likely that you will obtain a strong offer:

• Depth of management
• Clear top management succession
• History of audited financial statements
• Consistent reinvestment of earnings into operations
• Discipline of regular business plans / Projections

To the extent that selling your company is being planned for a future date, addressing the above attributes and incorporating them into your operations now will allow you meet your financial objectives when the time comes to sell.

In the coming weeks I will write about some Grooming Tips you can use to get your business ready for sale.

Many companies, particularly the traditional family business, will have diversified over the years into a
range of business operations. Often it is the case that prospective purchasers will be interested in
acquiring specific lines of the business rather than an amalgamation of businesses with no natural linkage. In these circumstances, the value of the enterprise will be enhanced by splitting the business into distinct units so that the founder or owner-manager, perhaps through an overall holding company structure, holds each separately.

Moving to a structure such as this can have significant tax implication, particularly through capital gains tax and stamp duties, unless the structures are planned and executed carefully. A tax efficient splitting of the component elements also presents the owner with an opportunity to retain an interest in some parts of the enterprise, for example, property assets, or to facilitate succession of part of the business by the next generation of the family.

In some scenarios, the best commercial result are achieved by consolidating different businesses that
are currently held separately, and again, pre-sale re-structuring can be accommodated on an effective
tax-free basis with appropriate advance planning. A prospective purchaser will generally require undertakings in the form of tax warranties and indemnities. Any issues that might emerge here need identification as early as possible in the planning stage of preparing your business for sale. These issues need be resolved in the most part before ‘going to market’ to avoid both the delays and costs that might otherwise occur later in the process.