Preparing your business for sale

forsaleSelling a business is like selling your house, you need to get it in the best possible shape to achieve the highest sale price and eliminate issues that will allow the buyer to negotiate the price downwards. Ultimately, it’s only worth what someone else is prepared to pay for it in the current climate. The first thing to do is be clear how the deal will be structured and that will start with any tax implications.

Tax implications

The tax consequences can vary widely depending on how long you've owned the business, the type of company it is and exactly how the deal is structured. By planning ahead with a tax adviser, you may be able to substantially reduce the tax bill. Don't forget to assess your personal and family tax position as well as the business. Next, start to gather information about the business such as:

  • Three years' profit and loss statements
  • HMRC tax returns for the business
  • List of fixtures and equipment
  • The lease and lease-related documents
  • A list of the loans against the business (amounts and payment schedule)
  • Copies of any equipment leases
  • A copy of the franchise agreement, if applicable
  • An approximate amount of the inventory on hand, if applicable
  • The names of any outside advisers

Sales tips

  • Maximise up-front cash and make it competitive to create vital leverage
  • Get all of the skeletons out of the cupboard
  • Ensure your business processes and records are in good shape
  • Resolve any potential shareholder issues
  • Appoint professional advisers and surround yourself with experts in their field


You may have forgotten much of the information that is required so it's a good idea to take a hard look at all of this. If you're like many small business owners, you'll have to search for some of the information required. Put yourself in the position of the buyer – what information would you need to have to allow you to ask the necessary questions. Everything starts with this information.

Make sure the financial statements of the business are current and as accurate as you can get them. If you're halfway through the current year, make sure you have last year's figures and tax returns, and also year-to-date figures. Make all of your financial statements presentable. It will pay in the long run to get outside professional help, if necessary, to put the statements in order. You want to present the business well on paper. Having a budget for the coming year will also help a buyer make a decision.

Prospective buyers eventually want to review your financial figures. Buyers want to see income and expenses. They want to know if they can make the payments on the business (more on this later) and still make a living. If your business is not making a living wage for someone, it probably can't be sold. However, you may be able to find a buyer who is willing to take the risk, or an experienced industry professional that only looks for location and feels that they can increase business.

Finding the right buyer

It is important that the buyer is as serious as the seller when it comes time to purchase a business. If the buyer is not serious, the sale will never close. Often a buyer will come from within the same industry and may even be a competitor. A few of the reasons that buyers buy businesses:

  • Desire for more control over their lives
  • Job dissatisfaction
  • Made redundant, fired, being transferred (or about to be any of these)
  • Early retirement (forced or not)

A look at the make-up of the average individual buyer looking to replace a lost job or wanting to get out of an uncomfortable job situation:

  • The buyer hasn’t owned a business before
  • Generally male (however, more and more women are going into business for themselves, so this is rapidly changing)
  • Nearly half will have less than £100,000 to invest
  • Initial funding will come from personal savings followed by financial assistance from family members
  • Money is important but it's not at the top of the list. Buyers who want to go into business strictly for the money usually are not realistic buyers for small businesses.

Keep in mind the following traits of a willing buyer:

  • The desire to buy a business
  • The need and urgency to buy a business
  • The financial resources
  • The ability to make their own decisions and have the characteristics of success
  • Reasonable expectations of what business ownership can do for him or her

What do buyers want to know?

It may help in your decision making process to understand not only who the buyer is but also what they will want to know in order to buy your business. Some questions that you might be asked and should be prepared to answer:

  • How much will the business cost now and going forwards if there are staged payments?
  • What is the annual increase in sales?
  • How much stock is held and what levels are required going forwards?
  • What can be done to grow the business and what can the buyer do to add value?
  • What makes the business different/special/unique?
  • What further defines the product or service? Bid work? Repeat business?
  • What is the profit picture in bad times as well as good?
  • Will the seller train and stay on for a while?

Cash flow

The first thing to keep in mind is that the vast majority of buyers want to buy cash flow. Sit down with your accountant and begin to get your financial statements in order, with cash flow the order of business. Cash flow is not the same thing as profit. Most buyers look at the profit and loss statement or tax return, as well as owner or family compensation. They will consider any excess compensation to employees and family.

Buyers will also look at large, one-time expenses such as a new computer system or remodelling. They will consider non-cash items like depreciation and amortization. Interest expenses will be reviewed, as will owner prerequisites. These are items that a professional business broker considers when advising a selling client on a selling price.

First impressions count

The time to replace that old worn-out piece of equipment is before you decide to sell. Don't assume that a new owner will want to do it or that the price will be slightly lower because you haven't replaced it. The time to spiff up the business is now, even if you aren't selling. Fix the sign, replace the carpet, paint the place – make it look good. Even if you're not selling, it's just plain good for business, and you never know when the time to sell occurs. Keep in mind that anything that increases sales also increases profits and the all-important cash flow and it usually won’t cost much to do it.

There are other things that add value to your business. Don't discount the value of customer lists, proprietary products and/or techniques, well-maintained equipment, secret recipes, customized software programs, or good employees. These are termed off-balance sheet items and although not used in most pricing models, they add to value.

Order book

It is important to identify what a “good” customer is and then look to increase your order book with that type of customer. Over the period of the sale process you may have to re-align your sales database with a different customer profile, particularly if you develop new services or products.

New products

Use the sale preparation time as a catalyst to update or replace old products or services and bring in new, fresher product lines. A buyer will want to see a product range that is correctly positioned in the market. If not market leading, it should be up there with the best, so prepare a marketing plan to find out what type of products your target market wants to buy.

Eliminate surprises

Long before you put your business on the market eliminate the surprises! Review every facet of the business and remedy any problems that could appear during the sale process. No one likes surprises – most of all potential buyers. Whether legal, accounting, environmental, or anything else – solve it now.


You have already put many long hours into the business, so by investing a few more targeted hours in preparing for its sale, you will be able to walk away with the benefits all that effort deserves.

Popular Posts

From Home Brewed Booch to Award Winning Kombucha: The Story of Hip Pop Kombucha

From Home Brewed Booch to Award Winning Kombucha: The Story of Hip Pop Kombucha

View more
How To Post On Linkedin For Maximum Impact

How To Post On Linkedin For Maximum Impact

View more
How To Prioritise To Do Lists The Smart Way

How To Prioritise To Do Lists The Smart Way

View more
How To Generate Leads On Linkedin (Includes Ingenious Little Tool Preview)

How To Generate Leads On Linkedin (Includes Ingenious Little Tool Preview)

View more