The Best Preparation Is Running a Great Business

‘Preparing your business for sale’ is something of an oxymoron. With more baby boomers heading towards retirement, it has become a fashionable phrase, and frankly it makes us wince.

What does it actually mean? A lick of paint and a new toilet seat on a fixer-upper? Anyone who has watched Selling Houses Australia knows the story: owners live in chaos for years, Andrew Winter rolls in to fix things up, and they love the result just in time to move out.

A business is not a house. It is a living asset made up of customers, management, staff, stock, intellectual property and goodwill. Its fortunes ebb and flow, valuation is far from an exact science, and it can’t be fixed up quickly just to sell.

Professional acquirers will see straight through any attempt to hide problems or stage the business. And the right strategic acquirer may want to buy your business today, warts and all. They often have the resources to handle the issues that worry you, and place little negative value on them.

That said, running your business as professionally and profitably as possible should be the priority all the time, not just when you start thinking about an exit. Do that, and the building blocks of value fall into place: the business becomes more rewarding for you and more attractive to others.

So if ‘preparing your business for sale’ means creating value, mitigating risk and running the business well for its current shareholders, great. Let’s get cracking.

1.  Know where you’re heading

A business with a clear purpose and direction is fundamental to becoming valuable. Getting this right isn’t easy, and outside input often helps. Once done, it can usually be distilled into a one-page summary that makes communication and execution far simpler. Strategic acquirers and professional buyers love a business with a clear vision, strategy and plan. After all, an acquirer is simply buying the future. Make sure you understand yours.

2.  Get on top of your numbers

You need to know your numbers: past, present and forecast, at least 12 months ahead and ideally three years. Produce accurate monthly management accounts on time, with adjustments for prepayments and accruals so that profit reflects what actually happened, and a balance sheet that balances.

Ask yourself: do you have a simple financial snapshot of last month’s performance, with key insights, by the 15th of each month?

3.  Make the business bigger than you

A capable management team reassures an acquirer that the business isn’t a one-man show. Set clear expectations and accountability, and make sure the organisational design makes sense, with clear roles and responsibilities. Hire carefully: people from large corporates don’t always thrive in a fast-moving SME, so look for experience in businesses of a similar size.

4.  Find your risks before a buyer does

Buyers want a stable enterprise. Get across risks such as revenue concentration, obsolete stock, litigation and doubtful debts, as they go to the heart of defending your earnings. Most buyers don’t expect a trouble-free business (private equity can be the exception), but they do expect management to understand the risks, reflect them in the numbers through provisions where needed, and have a sensible plan for each.

5.  Test the market before you need to

Some businesses get a knock on the door. Even if yours does, how will you know it’s the best deal? The only way to be sure is to explore your options in the market, intelligently and discreetly. An anonymous exploratory exercise gives you real, current intelligence on acquirer appetite and a realistic sense of value, both of which can inform your strategy whether or not you sell.

6.  Keep it quiet: you’re exploring, not selling

You’re not for sale; you’re simply exploring your options. At Oasis Partners, we protect your identity throughout the search for acquirers, because a leak can destabilise, and devalue, your business. That’s also why we recommend against producing an Information Memorandum as part of the marketing process. Nothing is final until contracts are signed and payment is made. Until then, it’s all ifs, buts and maybes, so keep it need-to-know.

For more on why anonymity matters, read our blog post Why Discretion Matters. 

7.  Untangle personal assets from the business

Timely, accurate, easy-to-follow accounts that reflect what’s actually going on, speak volumes. Even if non-business assets sit in the same legal entity, split them out in your management accounts. Confusing accounts with non-core items buried in them make buyers nervous.

8.  Put a deal-doer in your corner

Complement your deep knowledge of the business with independent advice, preferably from those with skills in negotiation and deal-making. That frees you to keep running the business well while buyers are identified and shortlisted candidates provide non-binding indicative offers in writing. A good adviser should repay their fees several times over. Check their track record, and make sure they genuinely understand you, your business and your market.