After years of hard work, sacrifices, stress and worry you’ve managed to build a strong and profitable social business. And you now decide that the time is right to sell your business and move onto another chapter in your life.

Although they were not social enterprises I’ve recently sold a web businesses and its great to be able to get 2-3 years cashflow up front when you sell.

But how do you actually go about selling a business? A question that an accountancy firm in West London, which works with a number of charities and social businesses, has been probed with on countless occasions over the past two years.

How can you be sure that you are getting the best price? Will the business itself be badly disrupted by the whole process? How much will it cost in fees and what about tax implications?

These and many other questions come tumbling forward as soon as any serious thought is given to the prospect of selling up. However, it is possible for all those questions to be answered positively if the sale is carefully planned and good housekeeping is performed beforehand.

Realistically you should be looking at a timescale of 3-5 years to get your business in a state ready for a sale. During this time you should consider the following:

Distance yourself from the business

The buyer wants the business, but probably does not want you.  You may be required to assist in the handover or there may be a need for you to stay on for a while after the purchase to ensure stabilisation, but the buyer needs to ensure that the business will function without you.

Monthly financials

It is likely that the purchaser is going to be a bigger business than yours.  They will not want to hear that you keep all the necessary figures in your head.  They will expect to see:

  • Management accounts:
  • Cash flow forecasts
  • Budgets
  • Sales order pipeline
  • Active credit control

To have these records and systems in place and easily accessible will make a big difference to the way your business is perceived.  Improve your corporate governance and you are likely to attract a greater interest from potential buyers.

Financial results

From the buyer’s perspective the value of your business is in its future earnings potential.  Probably the most efficient method of estimating future earnings is by reference to historical figures. Consequently, the more accurate your historical figures, the more credibility given to your projections.

Consider arranging for your end of year accounts to be audited if this is not done already.

Any long term, un-reconciled balances need to be cleared.

Carry out a stock take rather than estimating the value of stock held.

Any weaknesses in your financial records will be uncovered during the period of due diligence prior to the sale. The buyer could then use findings of this sort as a reason to negotiate a reduction in the sale price. By removing any such weaknesses now, the records in the 2 or 3 years leading up to the sale will be in a good state.

Your own expenditure

Have a think about costs that the business currently incurs that, while being legitimate, are largely incurred due to your own choice. For instance, do you drive a particularly high cost company car, do you have a very generous entertainment budget, do you really splash out for the staff at Christmas? These costs impact on the actual profitability of the business and it may be worth cutting back on these in order to demonstrate to potential buyers the true profit to be made from your business.

Clean up the balance sheet

Sell any surplus assets and scrap any obsolete stock.  Make realistic provisions for doubtful debts – buyers will want to not pay for assets that hold no value.

Properties

Do you own the freehold of your property(s) and if so, do you want to retain this? Are you looking to renew a lease?  If so, try to keep short, if possible.

Does the business own an investment property such as a holiday home or a buy-to-let? If so, it may be worth considering removing it from the business.

Tax advice

Include your accountant in the process at the earliest opportunity.  They will be able to provide advice on your tax position and give consideration to the actions necessary to mitigate any tax liability.

 

There are (of course) many other considerations, such as renewing contracts, involving other shareholders etc. but the better your planning, the greater the likelihood that you will achieve your goal.

Published by Richard Patey

Internet marketer, author, publisher, snowboarder and editor of this blog.

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