Business Valuation - Preparing your business for sale

The preparation stage leading up to the valuation of your business is principal to the sale process as it will determine an accurate value for your business and establish a guide sale price. Each minute detail will contribute to the overall value of your business, such as asset worth and existing debt facilities, influencing the decision of the buyer. By collating the required documents and reports with guidance from a business transfer agent, you can give your business the best chance of securing a new owner, writes Paul Williamson of Selling My Business.

It’s instrumental to use an experienced business transfer agent  or business valuation provider who has a track record of assessing businesses in your sector as you can benefit from their industry knowledge and understanding of the typical sales process. The business valuation stage is instrumental in assisting you with future planning, helping you assign an accurate estimate to the pending sale of your business. There are several tasks which should be undertaken before the appraisal of your business to pinpoint an accurate estimation.

Financial documents – Upon appointing a skilled party to assess the value of your business, you will be required to compile an extensive set of financial documents, statements and contracts, as set out by the valuer. Due to business confidentiality, a limited view will be made available upon initial enquiry, restricting the full scope of financial documents for serious buyers with a proven interest and evident funds to bid for your business. Information typically requested when valuing a business includes:

• ·         Company accounts: Detailed information on profit and turnover

• ·         Liabilities and debts: Including finance and credit facilities

• ·         Asset valuation: Including property, equipment and investments

• ·         Leases and contracts: Including agreements with suppliers and employers

• ·         Forecasts: Trading trends and investment returns

Financial and risk management – The organisation of a business can be gauged by assessing internal credit control initiatives and the general appetite for risk. If you are proficient in applying effective credit control measures, this reflects the well-managed nature of your business due to the careful analysis of payment reassurances before extending credit or delivering services.

Strict risk management measures will have a direct impact on the financial health of the business as carrying out supplier due diligence will help protect company cash flow  and working capital, steering the business away from the firing line of bad debt.

Growth potential – The higher the growth prospects of a business, the easier it will be to entice a buyer as it’s embedded in the lifecycle of a business to thrive and grow in each year of trading. If the growth potential of the business is limited, this could restrict future business goals and create a standstill in financial development. To illustrate this further, the buyer may request financial forecasts to gauge the prospects of the business for future performance.  

A key area of focus is also the condition of business admin, the premises and equipment as this will determine whether the business will require improvements or if it is a turn-key opportunity which will allow the buyer to resume operations after the baton is passed on. If your business has a strong presence in the local community, an established customer base and a financial illustration to reflect this, many prospective buyers are passionate about continuing the legacy of brick and mortar businesses, alongside brand names which are a cornerstone to the local neighbourhood.