5 critical steps for maximising the sale of your business

| September 30, 2022

Often when a business owner decides to think about exit, the horse has already bolted – it’s too late to put in place key elements that would have maximised the value of their business.

As the seller, there are three major considerations for a business owner to keep in mind:

  1. the primary value in the business to a buyer,
  2. how that value is protected and
  3. ensuring the full value can pass to the buyer, seamlessly.

Ideally a business owner – or owners – will have the following in mind well before they decide to begin the exit process.

1.    Customer contracts

Prior to a sale, consider how key customer relation­ships are secured and the impact of any relevant contracts. Fixed-term and recurring revenue contracts provide the strongest value but they need to be effectively trans­ferred if the sale structure is a business (rather than share) sale. i.e,. they need to be housed in contracts!

If you are selling the company (selling the shares) rather than the business, there shouldn’t be changes to customer contracts unless they contain a ‘change of control’ clause. Review your customer contracts to identify these clauses and remove them prior to renegotiation. If you are undertaking a business sale rather than a share sale, assess whether customer contracts need to be individually novated or more simply assigned.

2.    Key relationships

If value within the business relies upon key arrangements with outside services or suppliers, ensure they are contractually locked in prior to sale. If your supply arrangement is fundamental to the ongoing performance of the business, ensure there is a contract in place that will transfer with the business and provide ongoing certainty of supply for the buyer.

A buyer will want assurances that key rela­tionships will continue. They will value a business more highly if there is contractual assurance to protect the value in those relationships.

3.    Intellectual property

Intellectual property is an area of great value in a business. Brand is one example of IP that can have significant value in a sale. Other examples include website code, design and copyright and licence arrangements. These are fundamental to the operation of the business but ownership can often be unclear and lack security of tenure for the future. Also, be aware of IP issues around technology and software-based businesses, where a significant component of the value sits within the IP but the creator and owner of the IP rights may be unclear.

Prior to sale, ensure you have correctly identified and protected proof of ownership to all IP and that you have the right protections locked in so that, as the seller, you can prove you are the rightful owner of that intellectual property.

4.    Lease maximisation

Where the value of a business and its customer base revolves around its physical positioning, or where the cost of fit out and moving is high, a buyer will place value on your ability to have secured the premises on a long-term basis. The buyer may also want to purchase the premises as part of the deal, or have an arrangement put in place for a future purchase.

If the premises are leased, the terms of that lease will be particu­larly important for a buyer – and directly impact the value of the business to them. Therefore, it’s important that all leases in relation to the business are reviewed to ensure they have optimal conditions for a transfer to a buyer.

5.    Key people

Retention of staff is generally not the first thing business owners think of when they are considering selling their business; however, this can be critical to the buyer’s perception of value in the business – particularly for an initial period after the sale or if you have grown the business to a position in which it is operating under management without you being critical to that transition of value.

Ensure you have systems that will outlive staff turnover. The more systemised you can make a business and the less reliant the business is on key staff, the more value and less exposure your business is likely to have at exit.

A buyer will start to identify these areas as they assess what they feel the value is in the business for them and as they under­take their due diligence in assessing how that value will transfer. If a buyer identifies risks in the transfer of value, the purchase price will be impacted either in terms of the price offered or how the price is structured, and the period of time a buyer may want you to stay on with the business post sale (when all you want to be doing is relaxing on a beach in the Bahamas!).  As the seller, you must maximise these areas of your business in line with what the most likelybuyer wants –that’s a topic for whole other article!