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How to: Maximise your sale price


Many small business owners will rely on the proceeds of selling their business to fund their retirement. It’s important to make sure you get the right valuation, says David Cane

Many of us start a business and happily plough our furrow without thinking long-term as to what needs to be done to make it saleable. When I started my practice 35 years ago, my main concern was to make sure that the mortgage was paid at the end of the month, rather than the sale price many years down the line. 

But, as the years go by and you build up a customer or client list, start to take on staff and move out of the home into an office, what started off small is likely to have become an established company. 

Now you have spoken to your independent financial advisor, who has told you what you need to save for your retirement. Your business will play an important part in ensuring you have sufficient income on which to retire, but usually buyers will not be flocking to your front door to buy the company. Instead, you have to work out a business plan to sell it. 

The good news is that if you plan your approach to the sale of the firm earlier rather than later you will find it easier.

The following tips should enable you to improve the sale price or net sale proceeds of your business.

Create a competitive culture


Many business owners look no further than their own connections to find a buyer. This can considerably reduce the prospect of achieving a substantially higher price for the company, as you are dealing with one opportunity only. If you engage a reputable sale agent to attract competing buyers, your reward could be anything between two and five times the price originally offered by a single buyer.

Make them start the bidding


You should not include the sale price of your company with advertised details of its operations and financial summaries. Offers should be invited from buyers after they have carried out their due diligence checks. Otherwise you will not know if you have been offered the highest price.

Make an opportunity out of a problem


It is important that you are open in your negotiations and do not sweep anything under the carpet, as this will only come back to bite you. This approach enables you to state that a particular aspect of your business needs attention or to be addressed, and this has been taken into account in the price that you are prepared to accept. In fact, it may be something that the buyer can resolve, which in turn could increase the company profits and the value of the business in their eyes.

Do your review first


Like painting and decorating, selling a business is all in the preparation. That means critically reviewing all areas of your business and not just looking at last year's financials. The review should include sales and marketing, margins on sales, supplies, employees and overheads so that all these will withstand the scrutiny of the buyer and not give them the chance to reduce the sale price.

Consider the tax situation


If the business is incorporated, shares in the company are normally sold in exchange for the sale proceeds. This is the simplest and most tax-efficient way. If the buyer wishes to ‘cherry pick’ assets out of your company and leave the company in your ownership, this can be costlier for you from a tax perspective and, sometimes, for the buyer too. Instead, negotiations may encourage the buyer to purchase the company shares at a lower price and still leave you both better off.

David Cane is an exit strategy consultant at Sundial Tax & Finance and an FSB member.