Businesses don’t plan to fail, but many do fail to plan

Make sure your business has a financial record that will attract buyers

Planning well ahead helps you ensure that your business has a financial record that attracts buyers when you come to selling your business.

A first step is to ensure that your finances are in good order. Although this should be the case at any time, planning to sell your business can push you to focus on this area. One major area is control of working capital, through reducing stock levels and controlling creditors. There may also be opportunities to cut costs, such as renegotiating supply contracts and eliminating unnecessary perks. You can also sell underused equipment to reduce debt.

You will also want to present your accounts as attractively as possible. Buyers usually prefer businesses that show increasing profits year on year. If possible, your financial performance should be reasonably stable throughout the year. You may be able to bring forward or delay purchases and sales to help with this. You may also want to change some of your accounting policies.

Good sales forecasts will help to increase prospective purchasers' confidence in your business - but you must ensure they're realistic and can be supported with evidence. A full order book is a good sign.

It's important that buyers believe your accounts. For example, you should make realistic provisions for bad debts. Buyers will usually see through any quick fixes you try to use to boost profits.

To maximise short-term profits you can reduce longer-term investment. For example you might avoid expenses like advertising heavily or taking on new staff. But avoid excessive cost-cutting, you need to maintain spending in essential areas, otherwise the business suffers and so does the price buyers will be prepared to offer.

The confident buyer

The more confidence a buyer has in your business, the higher the price they are likely to offer. It's essential to set out a clearly defined strategy in your business plan.

You also need to show that you've got a strong management team in place. If your business is too dependent on your own skills, it will damage the price it can fetch - and could even make it impossible to sell.

Appointing deputy or departmental managers can enhance a company's value by alleviating that risk. You may also want to encourage key employees to stay by considering appropriate incentive schemes.

Aim to reduce your dependence on too few customers or on one or two key suppliers. Show how your customer base is expanding and formalise any informal deals you have with customers and suppliers.

You should also consider:

ensure you're complying with health and safety, employment and other legislation - consider asking your legal advisers to review the business
settle any legal disputes

make sure you have clear ownership of any intellectual
ensure property contracts are sorted out

put in place suitable management information systems
ensure your finances are in good order

The sooner you start planning, the more effectively you can do all this. There is a strong case for setting out your exit strategy in your original business plan. This will prevent sudden and probably misguided decisions about leaving the business, which could leave you financially worse off and could make the sale less attractive.

Throughout the sale process, continue to demonstrate that you will be flexible and co-operative. Show that you would also be willing to spend some time after the sale helping the buyer get acclimatised to the business. If you think it will help the sale, be prepared to work for the company for a fixed period after the sale is completed.

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