Five Tips for Effective Business Divestment

Selling a business is much like selling anything else in that it must be presented as a solid investment with the potential to benefit the buyer. Following are five tips to help you present your business to buyers in the best possible light and to divest yourself of it in a timely manner and at the right price.

Binders with labels: Sales, Purchases, Expenses
Much like selling anything else, a business must be presented as a solid investment with the potential to benefit the buyer.
Create a good impression

First impressions are everything, so make sure your business is clean, tidy and running efficiently when buyers come to look at it. Show them examples of your past accomplishments and of your company’s potential for future growth.

Be ready with the right answers. For instance, they will want to know the reason you are selling your business. Have your answer prepared and ensure you tell them that it is for a valid reason, such as to pursue other interests or retire. Otherwise they may assume that the business is changing adversely or that the industry/market outlook may have diminished for reasons they are unaware of.

Have your books in order

No matter how good your first impression, a buyer will always want to see hard evidence of performance, profitability and future opportunities. Make sure your books are up-to-date and on hand, and that they clearly illustrate the viability of your business. Show them your solid sales figures and mid to long term margin performance. Put your vision of the company’s future down on paper in the form of projections, as demonstrating your company’s growth potential in the hands of an acquirer is key.

Use professionals

Selling a business has legal and tax implications, so make sure you use professionals such as an accountant, financial advisor and solicitor to draw up contracts and to advise you of your obligations.

If you want to increase the number of potential buyers, you should also invest in the services of a broker, who will assist you in finding prospective buyers, present your business in the best possible light, qualify interested parties and negotiate the sale on your behalf.

Reduce perceived buyer risk

When evaluating a business, buyers look at both the prospective upside and potential down-side. This means that as critical as it is to demonstrate current value and future performance and growth potential, it is equally important to reduce any perceived risks in the purchase of your business.

Some concrete “risk-reduction” steps you can take prior to marketing your business are:

  • Have your books and financial statements in order, i.e. performance data is available, consistent and up to date.
  • Eliminate any bottlenecks such as reliance on a single staff member, customer or supplier.
  • Make a handover appear less risky by putting in place management structures and resource(s) as well as industry-standard or benchmark processes and information systems.
  • Resolve any outstanding legal or regulatory risks and issues, e.g. those involving staff, clients, suppliers or industry bodies.
  • Be prepared to offer to stay around during an agreed handover period to ensure a seamless transition between old and new ownership.
  • Make sure current client contracts and purchase orders are documented and up-to-date.
  • If and where issues or uncertainties do exist, it is better to raise them earlier in discussions rather than later. Do not wait for a prospective buyer to discover “hidden skeletons” during due diligence. This experience will create fear and mistrust for the buyer – in the best case prolonging due diligence and in the more common case devaluing the sale price if not derailing the transaction completely.
  • Finally, if and where issues and uncertainties do exist, you may have to consider a staged buyout, in which some portion of the agreed sale price is paid on a deferred basis and dependent on actual performance milestones.
Be flexible and patient

It’s not over until the proverbial lady sings, and divesting a business can in some instances take time. After completing offer and acceptance with an interested party, many vendors find the due diligence and closing stages of a deal especially long and frustrating. It seems like the deal is done, but settling on the terms of sale, of payment, and of handover can involve lots of give and take on all sides. Add the involvement of third parties like solicitors and the mix of different agendas can easily knock a deal off the rails.

As a vendor it is therefore important to keep an open mind, as you might have to explore options that diverge from your original expectations or vision of getting out. It’s best to enter into a divestment process with as few fixed ideas as possible and focus on the long-term outcome for yourself and return on investment for your acquirer.