Cashing Out – Part Four

How do I maximise my returns?

I’m afraid that this instalment doesn’t come with lots of get rich quick schemes but brings things back quite squarely into accountant and solicitor territory. There will always be examples that break this mould but these are the exceptions rather than the rules, so if you are one of those rare unicorns sprinkled in fairy dust, the very best of luck to you but for now I’ll stick to the knitting.

For the purpose of this article I’ll be continuing with the assumption that we are looking at a business sale in some form.

When selling a business we are selling confidence, confidence that;

  1. The business is as it has been described and retains the ownership of assets and has legal rights it expects
  2. The business will continue (and hopefully improve) in profitability 
  3. The numbers are straight (the books haven’t been cooked to present a favourable position)
  4. There are no known or unknown nasties lying in wait.

To build and demonstrate that confidence takes time which is why we (amongst others) suggest that a time frame of around three years is required to get from thinking about it, to putting the steps in place to arriving at the final negotiations and contracts.

This may sound a long time but there is much to do and it has to stand the scrutiny of external verification or Due Diligence.  Any aspect that fails may cause the deal to fail or result in the price being knocked down to reflect this lack of or loss of confidence.

The list below is not meant to be exhaustive but it’s not a bad place to start;

  • Get the numbers right – you need to be in a position to produce regular and accurate management accounts, detailed budgets and a variety of scenario based forecasts. Regular reporting against budgets allows the business to demonstrate its ability to generate profits and also builds confidence in the longer terms forecasts and the businesses ability to deliver these.
  • Get the legals right – ensure things such as leases, contracts, t&cs, etc are all up to date and support each other. These are often done in a piecemeal approach and can become out of date with legislative changes. Also look for what isn’t there that should be.  Do you have a trademark in the right jurisdiction to help prevent copycats? Or are deals still being done on a spit and a handshake?
  • Get the people right – the single biggest discount factor in a sale will be if the new owners believe that the business is dependent on you. Bringing in the right people to move the reliance of the business away from you is critical and not something to be rushed (hence the three years). In addition ensuring all staff have strong and relevant contracts of employment supported for key staff with appropriate non compete and confidentiality clauses will continue to build confidence in the team.
  • Understand your IT – don’t panic, I’m not asking for you to be the next Bill Gates, but you do need to understand the basics.  What do we generate, where and how is it stored, how is it backed up, do we have a contingency plan are we exposed to a cyber attack? Getting a handle on the basics that underpin key business processes is a must.
  • Get someone else to say it – where possible & relevant look to obtain recognised accreditations that can support the ascertain that you know what you’re doing and you’re doing it right.  There are core ones such as ISO 9000 around quality or Investors in People that are open to most, but memberships of trade bodies particularly those with an accreditation and inspection regime continue that theme of confidence.
  • Be upfront with the risks – acknowledging a risk doesn’t make it any more likely to happen but clearly demonstrates a transparent approach to risk and a clear understanding of the environment in which the business operates. The creation and regular updating of a risk register allows these risks to be identified, appraised and crucially a plan for how to mitigate and manage those risks. You highlighting what the issues are helps to diffuse any finger pointing at a later date.
  • Meet regularly – this process doesn’t just happen and needs a real commitment and dedication to deliver.  It’s hard to sustain over a three year period but as the saying goes, if something is worth doing it’s worth doing right.

I hope that this series of four articles has been informative and if you’d like to talk about how this might relate to you in more detail then please contact the office and we can start your cashing out journey together.