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With a general election on the horizon in 2024, many entrepreneurs are increasingly nervous about political risk and potential changes to the Capital Gains Tax regime and are therefore considering whether now might be the right time to consider an exit. Whilst tax is an important consideration, there are a number of factors that must be contemplated to ensure that your company is exit-ready and to maximise the value that could be achieved.
The first thing to ensure you have assembled a trusted team of advisors to support you through the deal process. Having an experienced corporate finance advisor and lawyer working for you in the early stages can help you to identify any potential issues and rectify these in advance of launching a sales process. We are currently working with a number of clients where we are offering strategic advice in preparation for a sales process. Having an accountant who knows the business is equally important; buyers will want detailed financial information going back at least three years so now might not be the right time to change accountants if you are considering a sales process. Finally, having a specialist M&A lawyer will make the process much easier, using a general commercial lawyer who is not already aware of M&A issues could cost you time and money!
In this edition of the Board Minute, we have also interviewed various sellers of businesses who agree with Rupert.
Succession planning is an issue that frequently comes up in deals, where buyers question the business’ reliance on the existing shareholders. Getting an experienced management team in place well in advance of starting to sell will give buyers confidence, without this they are likely to want to tie in the shareholders for extended handover periods. Are you confident that this team can deliver on your company’s forecasts? Buyers will want to see a forecast for at least the current year, and in today’s uncertain times, earn outs and deferred consideration contingent on achieving forecasts are becoming more commonplace. They also want to know that your customers are loyal to the business and not only the existing shareholders.
Does your business have all its documentation in order? Deals can fall over in due diligence due to poor or inaccurate record keeping so having a handle on this before approaching buyers is essential. It is sensible to have a health check to ensure that financial, HR, commercial contracts and property matters are clean, tidy, and diligence ready. Another item that is frequently requested is management accounts; are your currently preparing these on a timely and regular basis?
One of today’s biggest value drivers is secure, recurring and contracted revenue, so ensuring that contracts are in place with all your customers and demonstrating long term relationships will help to achieve the maximum sale price. Businesses with proprietary IP are more valuable than those who buy in or white label products, so it is worth checking you own any IP and are not just a licensee.
If you’re considering an exit over the coming year or so then you should be considering all these factors now, in order to ensure a smooth transaction process when you are ready. Seeking legal and commercial advice early can ensure your business is ready for sale and allow you to focus on those levers that drive value.
Article by Rupert Rawcliffe of SRC Corporate Finance