Selling a Privately Owned Business – Briefing 6 – Grooming for Sale
Often business circumstances will dictate that a business is not yet ready for sale, and that a further period of time is required to prepare or “groom” the business for eventual sale. The most important consideration in grooming for sale is that the eventual objective should be to maximize the value of the business.
Firstly, consider key strategic issues, focusing on the real “drivers” of the business in the grooming process. These will probably include sustainability of earnings post sale; the undeveloped potential of the business, perhaps markets, products or services; and reliance on the outgoing owner.
Secondly, practical and operational grooming allows the business to be shown as a sound investment. The following are ten common and key grooming issues.
• Management. Ensure a second tier of management exists to provide continuity post sale.
• Customers. Reduce over-dependence on particular customers or suppliers.
• Systems. Review operational systems and financial controls to ensure these are up to the job.
• Company Statutory Records. Ensure these are all up to date and in order.
• Contracts. Review all customer contracts and check they are current, and in
accordance with all legislation and best commercial practice.
• Pricing Policy. Review profit margins and costings on all products / services to ensure
that they are providing the maximum income stream for the company.
• Operating Costs. Review all overheads, removing or reducing excessive or unnecessary discretionary costs of all types. Review and remove excess personal / family cost.
• Legal. Litigation is unattractive to any purchaser. Clear up any disputes as far as possible.
• Staff. Check all contracts with key staff.
• Assets. If any of the assets are redundant, consider disposal. Appreciating assets such as property should be re-valued to assess true market value.
• Investments. Dispose of investments or revalue to show full market value in balance sheet.
• Stock. Review all stock, ensure clean and properly valued. Dispose of old or obsolete stock.
It can be seen from some of the points above that grooming is not a one off matter, but a continual process, best started as early as possible. It can continue even through the sale process, where preparing for the type of offer, structure and terms and full understanding of the buyer’s perspective will contribute to maximizing the value on sale.
9 August 2018