Matt Newing, founder of Elite Group, shares his top five tips for entrepreneurs looking to sell their business:
“Over the past couple of decades, I’ve spent many hours managing businesses during earn outs and, based on my experience, here are my top tips on what to consider when preparing to sell your business:
1. Do your own due diligence
This is an area where corporate advisors can be of great help to ensure your business is ready before going to market, but there’s a lot you can do yourself to make the process far smoother.
For example, make sure you have copies of customer contracts, know how much of your margin is in long-term contracts, ensure you’re following standard accounting policies for revenue recognition and that all employees have robust contracts of employment.
2. Have clear and realistic objectives
Be realistic on your personal objectives and, therefore, deal structure. What’s the minimum value you’d accept for your business?
There are a number of tough decisions to make – from what role and control you want post-exit to what will happen to your staff – so knowing your options and thinking them through beforehand is critical to ensuring you make the right choices in negotiations.
3. Dress your business for sale
Moving on from my previous point, you need to identify what is great about your organisation. Are you out-performing the market in any areas? Do you have any IPR that could be scaled?
Don’t underestimate what a difference presenting your best attributes as a business can do when making it more attractive to potential buyers and investors.
4. Create competitive tension
By engaging experienced corporate advisors you can attract competing buyers that will ensure the best value is achieved for you. But also present a range of different options, offering choices such as how long to stay in, plans for your most loyal staff, upside earn-out versus maximum upfront.
Some buyers will see your business as a synergy play, looking to take as much cost out as possible, while others will see you as a complementary play, bringing products and skills that they don’t currently have and hence looking to invest and grow your business.
5. Hire a solid legal team
You will need a good legal firm to support you on the sale and purchase agreement (SPA). They key to achieving value, personal objectives and successful post-acquisition earn-out and role is a well written and negotiated SPA, as this is the key document that sets and agrees expectations, governance and balance of risk.”
Matt Newing is Founder of Chorley-based Elite Group and an angel investor in the digital, IT and telecoms sector.