Are you ready to sell your business?
Selling a business is a significant event for most business owners. For many, it is also a one-off event that they have not had experience of before, meaning lots of unfamiliarity with the process. The Shorts Corporate Finance team have years of experience in helping clients prepare for exit, as well as leading them through a transaction. Our team is happy to help at every step of the process.
Transaction readiness assesses the current business, ensuring it can withstand a due diligence process performed by a potential buyer, and making sure the business can be sold for the best possible valuation.
Why is transaction readiness important?
A potential acquirer is buying into the future performance of a business and therefore needs to be confident in the business as a whole.
Being ready for a sale doesn’t just mean the business is currently performing well and the current owner wishes to exit. It also means robust business operations, a capable management team, high quality management information, and reliable forecasts.
What is a transaction readiness review?
A transaction readiness review helps business owners assess the businesses attributes - those that would be highlighted during a disposal process - and any limitations that may negatively impact on the value of a business
The review also helps align the corporate tax, wealth management and personal tax team with the owners’ objectives and the actions required to maximise value. For example, if a business has a property they would like to extract prior to sale, the tax team will be ideally placed to calculate the most tax efficient extraction and action this plan pre-sale.
A transaction readiness review can resolve potential obstacles in advance of any disposal process, this could potentially mean the actual transaction is significantly more straightforward.
What happens during a transaction readiness review?
Key areas reviewed are operational, management team, business strategies going forward, finance and taxation issues. It will also highlight areas where legal assistance could be necessary.
KPIs, revenue and gross profit trends will also be reviewed, and management will be questioned on how they monitor the trends of the business . Customer profile will be reviewed, to highlight any key customers or any customers the business is significantly reliant on Supplier reliance will also be considered.
What does the report say?
A transaction readiness review will start with a valuation of the business at it currently stands and project forward to a valuation range that is possible to achieve if steps are taken to smooth out any areas identified for improvement during the review.
A review will also include a checklist, highlighting substantial risk issues and high impact areas for improvement together with our recommendations based on our experience in the market.
What can you do now?
Below are just a few examples of key risks and recommendations where we generally see businesses fail to prepare, which can lead to delays or price reductions/renegotiations during a transaction.
| Risks | Recommendations |
| Changes in market conditions haven't been reflected in strategic business plans, meaning the company is working to outdated goals. | Review the current plans and evaluate whether the current strategy needs altering. |
| Quality of financial information is poor or slow to obtain. This can affect a buyer's confidence in the business and its internal systems. | Consider improving internal finance function, either by bringing in a new member of staff, or an external team to assist. |
| Potential buyers could be concerned that the exiting business owner has significant know-how and business relationships that could be lost. | Begin to transfer relationships with customers and suppliers to the management team, include them in business decisions to develop their experience. |
| Employee health and safety, technology risks, and/or product defects are all risks an acquirer will need to assess prior to buying a business. | Maintain strict health and safety policies, take out relevant insurance policies and request consultations with consultants to protect against cyberattacks. |
| Major contracts with customers and staff being outdated and therefore invalid. | Consult with lawyers to review all key contracts, to ensure they're all valid. Make sure a change in ownership wouldn't change the nature of the contracts. If not, reissue contracts where possible or inform your mergers and acquisitions (M&A) advisor at the start of the process. |
| Company secretarial duties being missed/incomplete. | Ensure all Company submissions are on time to both Companies House and HMRC. |
It’s never too early to begin being transaction ready, we strongly recommend getting in touch so we can start to add real value to probably the most valuable asset you will ever sell. To review the different types of exit strategy that may be available, we encourage you to read our detailed summary.
Tags: Corporate Finance, EOT
