Practical insights for local businesses preparing for a potential sale.
For many business owners, selling their company is a once-in-a-lifetime event. Unlike large corporates with in-house M&A teams, most businesses approach a sale with limited preparation. The result is often a lengthy process, with the inherent uncertainties of the M&A process being made worse by lack of preparation. If you're considering a sale, these nine questions can help you prepare, identify risks early, and make informed decisions that protect value:
1. Is the business too dependent on any one person?
If day-to-day operations, key decisions, or client relationships rely heavily on you as the owner or on any other key person, this raises concerns for buyers. A well-prepared business should have defined processes and a team that can operate independently. Where key person risk exists, it’s important to consider whether those individuals are willing to stay on for a defined handover or transition period (often 12-36 months) after the sale.
2. Are the company’s records clear and reliable?
Buyers expect timely, well-structured financial information they can rely on. This means having regular management accounts that are readily available, consistently prepared, and use appropriate revenue and cost classifications. Gaps in reporting, delays, or poorly organised data can raise concerns and slow down due diligence.
3. What is the business’s normalised profit?
Profitability needs to reflect what a buyer would realistically earn post-acquisition. This often means adjusting for items such as the owner’s remuneration, personal expenses, or non-recurring costs. If the business owns the premises it trades from, a market rent should also be factored in (even if none is currently charged) to present a realistic profit profile.
4. Are key assets and agreements clearly documented?
Ownership of intellectual property, licences, domain names, supplier and customer agreements should be clearly established and transferable. Anything informal or undocumented will raise red flags if material.
5. Are there any hidden risks or liabilities that could come up later?
Buyers will look closely for potential issues that could lead to future costs such as ongoing or potential legal disputes, unpaid taxes or employment claims. Even if these haven’t caused problems yet, they can raise red flags during due diligence. It’s worth identifying and addressing these areas early to avoid surprises that could delay or derail a deal.
6. Am I personally and professionally ready to sell?
Uncertainty about your future role or hesitation to step back can create tension during negotiations and even derail a deal. It is important to be honest about whether you want a full exit, a phased transition, or continued involvement, and to commit to that path.
7. Who is the likely buyer, and what would they value most?
Buyers may include strategic acquirers, financial investors, or individual operators, each with different priorities. It is important to tailor your messaging and highlight the business’s unique strengths based on what each type of buyer values most.
8. Is there credible growth potential?
If strong growth is expected in the short to medium term, it can add significant value. When a large part of the valuation relies on future performance, consider whether you are open to an earn-out as part of the deal structure.
9. Do I have the right advisers in place?
Experienced advisers can support throughout the M&A process including with indicative valuation, deal structuring, negotiation, and due diligence work. The right support can help you avoid costly missteps and increase the likelihood of a successful outcome.
At Hatten, our advisory team combines seasoned M&A consultants with entrepreneurs who have successfully exited their own businesses, bringing both technical expertise and first-hand experience to the advisory process. Contact us today if you want to discover more on how we can help you.
