1. Get your Accounts fully up to date.
2. Make sure there are no staffing issues and that staff contracts are in place.
3. Are your premises leased? Make sure you have a copy of the lease available.
4. Do you need to update any supply contracts or any customer terms?
5. Is all equipment and machinery fully operational and serviced and health and safety compliant?
6. Do a stocktake. make sure an accurate stock figure is shown in your Accounts.
7. Check renewal dates of any intellectual property e.g. trademarks, patents, domain names etc.
In April, The Government introduced legislation that will impact every business in the UK. This is by far the most significant change in company law in many years and, just in case your accountant hasn't let you know about it yet, we thought you'd like to know what's happening:
What you need to know
What you need to do
Article provided with thanks from our friends at The Wow Company UK Limited
So, why wouldn't you want to divulge your entire customer list to a prospective buyer?
Seriously though, one major reason your business for sale is of interest to a buyer is because of the customer (or client) base. Obviously you would want to protect that valuable information until the right moment so as an alternative I suggest a list of the types of customer. For example a Commercial Cleaning company for sale may have a client list including the following:
Double Glazing Manufacturer
and so on............
Some data presented in a Sale Memorandum has to be abbreviated or held back as confidential so the buyer has to assess their interest on the basis of limited information. A customer profile like the above can assist especially if it also shows the percentage of turnover by customer. Over exposure to one or two customers is always a significant issue to the business and to possible purchasers.
The art (or is it a science) of presenting a business for sale and to move to the stage of meeting a prospective buyer is in the provision of well-presented, demonstrable data. The customer list, or customer profile list is just one part of the overall presentation.
Clearly many retail businesses will not have much detail on customers although E-Commerce and Mail Order businesses will have the information. There are restrictions under the Data Protection Act on showing this type of information but a picture of a business can be built up by matching the customer numbers to the types of goods sold. Put simply, a successful Online business should have lots of customer records, many of whom are opted in for newsletters and marketing etc. This is valuable. Let your buyers know.
October 13th 2015
The 2015 Budget Report as kindly provided by Wilkins Kennedy Chartered Accountants.
Selling Your Business - Checklist Item 5. Staff schedule with positions, length of service, ages and Salaries, include owners, indicate key staff and any vacancies
Buyers will want to know staff numbers, roles, lengths of service and so on. In any business sale and purchase the staff are valuable assets and must be given a major consideration.
Of course any vendor will be reluctant to release detailed information on staff, so the Staff Profile forms part of the confidential Information Memorandum which is only released once a Non Disclosure Agreement has been signed by the prospective buyer. Even then some vendors may prefer that personnel are not named so initials can be used or even loose headings such as Staff Member 1, Staff Member 2 and so on.
The personnel list and description gives a buyer additional information in assessing whether or not they need to employ a new manager to replace the owner or if they (the buyer) needs to replace the buyer themselves. Any privately owned, vendor-run business with a good second tier management will be of strong interest as the buyer has further comfort that the business can prosper under new ownership.
So, whilst a comprehensive list of staff may not be the most essential documentary part of a business profile, it should not be neglected, nor should it be something that is poorly prepared.
February 12th 2015
For Ecommerce or Online Businesses, Details of Web Traffic, Size of Customer / Subscriber Database, Google (or similar) Analytics. Social Media details.
The thing with online businesses is that all data provided to prospective buyers needs to demonstrate the presence of that business. A high-street shop has the bricks and mortar premises and footfall can be measured, whereas even the best designed website needs to demonstrate this by the accumulation of relevant data.
The best tool for this of course is Google Analytics although most sites have a back-office system with traffic and sales data available in all types of format, tables, graphs. pie-charts etc.
Ecommerce sites have a valuable resource in their customer databases. These can be used for e-shots with special offers, new products, new seasonal collections or just general chatter designed to build up a customer relationship. Sites which make money via subscription or similar revenue models will also have a database which can be used for marketing in the same way.
Social media is also a vital tool for online businesses and can be used in several ways for marketing and to increase the presence of the business.
So, when presenting an online business for sale, whilst it may need all of the usual business information such as accounts, assets and so on, the business model also has its own specific evidential requirements as outlined above.
If you are considering selling an online or ecommerce company please CLICK to get in touch for our Ecommerce Fact Find and Questionnaire which enables you to provide all of the necessary information via a simple-to-follow Q & A form.
December 11th 2014
Continuing my exploration of the items needed to prepare and present a business sale file I now come to item 3 on the checklist, an asset inventory.
Buyers will expect a business to come with all assets necessary to continue the business as a going concern. By preparing and presenting a list of fixtures, fittings, equipment and assets early in the sale this can be clarified and quantified. It may also assist both buyer and seller if anything is to be excluded from the sale. e.g. a personal vehicle or computer.
These days one would expect there to be some element of intellectual property (IP) in any sale, at the very least most businesses will have a website and a domain name or names. Then there may be specialist software and licences depending on the business concerned.
In general, with most SME businesses it shouldn't take too long to prepare an asset list. It should be made clear that the assets included in a disposal are subject to contract and it may be necessary to complete a far more detailed list for contract purposes. Things may change anyway with items being replaced, disposed of, updated etc. As our focus is on the marketing and sale it isn't necessary to be too detailed. For example, for a cleaning business you would not be expected to count every mop and bucket but more expensive items like vans, floor cleaners, ladders, vacuum cleaners, window-cleaning pole systems etc. should be included.
It is essential to note where any assets are leased, rented or on finance. A buyer would ask about this in due diligence but knowing this in advance will save time. A shiny new Ford Transit van may look good on an asset list but if the buyer has to take over financing of £300 per month he/she would wish to know.
So, compile a list, and like Santa in the well-known song, check it twice. One client forgot to put his telephone system on his list. It is reasonable to assume it was included in the sale but, of course, telephone systems are often leased and the lease may need to be transferred to the new owner.
November 12th 2014
When considering the acquisition of a business for sale, buyers want to know not only the recent history (hence 3 years Accounts), but also the up to date status of the company. So, as a minimum I recommend that sellers present the latest financial year management accounts for the latest month available. For example as I type this on October 30th I would expect most businesses to have their figures to the end of September. Month-end figures are tidy because they include all income and expenditure in the month whereas mid-month accounts will have items missing (often salaries, which are paid at the end of the month)..
Another reason why management accounts are important may be because the latest financial year-end accounts may not yet be ready. Many companies have their year-end on December 31st and will only recently have filed within the September deadline. Similarly many businesses have a year-end of March 31st and may only be now beginning to prepare their accounts for filing. So, for these businesses we may need the management accounts for year-end March 31st and the figures to September 30th.
Management Accounts can take many forms these days. A Sage accounting package is the most commonly used form and this gives a very handy print of month end profit and loss and a balance sheet. So do other packages such as QuickBooks, Xero and so on. Often smaller businesses may just use a simple Excel (or not so simple) spreadsheet.
Other important data which it is useful to show is a breakdown over (say) the last 24 months on a month-by-month basis. This will show any seasonal trends which may be a consideration to a buyer e.g. he/she may be looking to acquire a business with a strong summer bias to compliment another business which is busier in winter.
A 24 month breakdown on a customer-by-customer basis may be useful also. Whilst it may be sensitive to reveal customer names these can be shown by type, or simply Customer 1, Customer 2 etc. Obviously if the business has dozens or hundreds of customers it is not practical to show this information but many SMEs have a core of 6-12 main customers and this can be provided.
Finally the process of revealing this data does need to be carefully managed by use of a Non Disclosure Agreement or similar Confidentiality Undertaking. But having this information can greatly assist both buyer and seller. The seller is showing they are serious about selling and the buyer can begin to make an appraisal of the company without wasting time requesting such data or on abortive visits to poorly prepared businesses.
October 30th 2014
In my blog post of October 6th 2014 I published a checklist which I send to prospective new clients who are considering a sale of their business or company. Here I'll expand on the first item on that checklist "Copies of last 3 years accounts (including latest accounting year)".
To most people it may seem fundamental that to sell, or to consider buying a business, you need to produce accurate and timely accounting information. This provides several levels of authenticity and verification of the business concerned:
1. The accounts show the trading history over a reasonable timespan
2. They show the ownership and shareholding (or partnership) structure of the business
3. They may show business trends, i.e.owner's drawings/salary, increased/reduced sales or profitability, changes in stockholding, asset values, debtors and creditors, cash position, liquidity ratios, borrowings, overheads and expenses - the list goes on
4. Most importantly (in my view) by producing accounts it shows that the vendor (and his/her broker or agent) is serious about selling the business. Only last week I heard from a prospective buyer who had been to see 2 businesses marketed by other agencies only to find that the glowing online advert description did not match the reality of the business. This, unfortunately is not an uncommon story. The provision of accounts would have saved the prospective buyer a lot of time, not to mention the vendors.
Of course it may not be that simple to provide 3 years straightforward accounting history. On my desk I have an enquiry from a business which was a sole trader until 2013 then incorporated as a limited company. The accounts provided cover the periods:
1.9.2011 to 31.8.2012 (Sole Trader)
1.9.2012 to 31.5.2013 (Sole Trader) and
1.2.2013 to 31.5.2014 (Limited Company)
However the important thing is that there are no gaps and, as mentioned in my points 1. and 2. above the accounts do show trading and ownership structures.
The other important point is that accounts should be produced promptly when selling. Many buyers will not seriously consider a business which does not have Annual Accounts for the latest trading year.
Finally, some businesses simply cannot produce 3 years worth of accounts, maybe the business isn't even 3 years old, or maybe it is part of a larger company. So we have to provide as much information as possible. This may be management figures, 1 years accounts plus management figures or even an interim set of accounts or Sage, QuickBooks or Excel analysis (or similar). In some ways this "raw" information may be more useful than full accounts and I shall explore this in more detail in later posts.
Thank you for reading this. If you are thinking of buying or selling a business please get in touch.
13th October 2014
Keith Green - selling businesses and advising SME business owners since 1997 and still enjoying it.