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Selling your business – when is the right time?

You’ve worked hard for many years to get your business to where it is today. You will almost certainly only sell it once so it’s vital you get it right first time.

So just when is the right time to embark upon what is ultimately an emotional and time-consuming task albeit one that done well should provide the reward at the end?

Is it now?

Is it two to three years hence when you’ve had time to plan and groom the business for sale?

Logic tells us that it’s the latter and we’ll look further below at why that’s almost certainly the case. However, there can be a number of good reasons why selling the business now shouldn’t be over-looked. These may include:

  • The economic cycle
  • Adverse changes to your particular industry
  • Ill health or other family circumstances
  • Upcoming tax changes
  • Loss of key staff or relationships

Whilst any or a combination of the above may be reason to sell the business as soon as possible, for business owners not forced into such action, selling too early is a common mistake. Ask yourself this simple question, “If I had time to plan ahead would I be able to get the business into better shape for a potential buyer AND increase my exiting options?”

Make a plan

Decide when you want to sell. Draw up a plan and timeline for doing all those things you think will give you the greatest chances of selling and the highest value for your business.

Make each of these items an objective and have a deadline for each of them being in place. The majority of items will be those identified from the ‘readying’ checklist you draw up when looking at what you need to improve in the business to make it ideal for a buyer, (see below).

Your plan should end with the final goal and be dictated by the answers to questions such as ‘What date do I want to sell the business by?’, ‘How much do I want for it?’, ‘Do I want to continue in the business post sale?’, ‘Do I want to minimise personal tax liabilities?’

Increasing your exit options

Broaden your thinking as to who might buy your business. It is very common that we look little further than our direct competitors. In reality, a vast number of business sales do not involve direct competitors.

Rather than simply looking at your market horizontally, look up and down the food chain. If you are a web design company, don’t just consider other web designers. Perhaps the creative marketing studio wanting to expand its general marketing offering might be interested? Perhaps the IT company servicing hundreds of customers wants to enhance its cross-selling opportunities by broadening its offering?

Consider a management buy out. This has many advantages not least that the buyer(s) already has an intimate knowledge of the business allowing negotiation and due diligence to be kept at a minimum. If there is not a suitable buy out team already in place then part of the plan could be to recruit them with a view to the end goal.

Readying the business for sale

You will obtain the best price for your business if a buyer perceives it is taking on little risk, has to make relatively few changes to the running of the business and has confidence in everything presented during due diligence.

You should therefore focus primarily upon:

  • Financial stability and growth
  • Watertight contractual and legal formalities
  • Having sound processes and systems in place
  • Assets in good condition
  • Knowledgeable and competent staff running the business

Every business is different and only you will know precisely what measures need to be taken in order that your business can tick all of those boxes at the time of sale. You want to show a buyer that the business is profitable, cash generative and growing, that information is accurate and can be found quickly, that you have formal contracts in place with all key customers, suppliers, employees and key stakeholders and that the staff can run the business without your input.

Achieving these outcomes doesn’t happen overnight but with a little thought you should be able to get there in the timeframe you set yourself.

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