When should I start preparing for a sale exercise?

Our sister company, Bluebox recently undertook a poll asking, “At what point before you sell your business should you start preparing for a sale exercise?” Interestingly, 53% of participants said 2-3 years prior, while 47% said about one year prior. Evidently opinions were quite divided on the subject.

Planning is key to the successful outcome of any sale process. Ineffective pre-sale planning results in lost value for shareholders and in many more instances will result in a business failing to sell entirely. A key component to effective preparation is allowing sufficient time to do so.

We seek to engage with clients as early as possible before taking their business through a sale exercise. Each sale process that we work on presents different challenges and issues for sellers to consider. We work closely with sellers to identify and address these issues in advance of taking their business to market. Engaging in pre-sale planning 2-3 years out allows both sellers and advisors the time to recognize and anticipate issues well in advance. Sellers can then take the necessary steps putting plans and strategies in place to address these.

Sellers who have allowed themselves time to understand how their business presents to the market will be able to make informed decisions around key considerations in advance of a sale exercise. A well-prepared business puts sellers on front foot when entering a sale exercise, enabling advisors to drive deal momentum and competition in the market, achieving the best possible price for the business.

Where sellers haven’t taken the time to ensure sufficient pre-sale planning has been undertaken, they risk being presented with difficult negotiating points mid process such as price chipping from buyers or requirements that sellers assume liability for issues post completion. Sale exercises will run to tighter timetables mid process and sellers will not have the same time at their disposal than they have pre-sale to deal with issues. When issues come out in due diligence sellers find themselves on the back foot in price negotiation. Significant issues arising mid process creates a risk that less advantageous solutions are adopted.

There are a number of key considerations common to all pre-sale exercises. Sellers with more time find optimal solutions to value destroyers and implement strategies that achieve the best results in a sale exercise. Bluebox uses time with sellers pre entering a sale exercise to walk through the business and ask questions such as:

• Are there any gaps in key customer or supplier contracts including change of control clauses?
• Does the business have the necessary operating licences, accreditations, consents, planning permissions, and control of its IP?
• Do assets need to be moved in or out of the target company and have tax efficient structures been considered?
• Are key employee contracts in place committing valuable individuals to the business while also protecting business IP and restricting against non-solicitation of customers and staff.
• Have we explored what a realistic valuation is for the business?
• Have we implemented growth strategies and cost reductions, and managed working capital to present the most favourable financial position and projections of the business?
• Have we prepared for buyer/vendor due diligence and are the sellers aware of what this involves?

Effective pre-sale planning leads to better deal terms and this simply takes time. Sellers who give themselves time to engage with preparing their business for a sale exercise are best positioned to maintain control of the process, which is crucial to negotiating best possible deal terms, driving deal momentum.

If you are thinking about selling your business and would like to make the process as smooth as possible, we would welcome an exploratory chat. Get in touch with us today via this link or email us at info@blueboxvelocity.com