Management
The management team play a crucial part in the operational and strategic direction of a business. For a buyer the management team will be integral in successfully integrating the businesses, establishing the reporting lines and in delivering the growth plans.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Remove reliance from the ownership: Would the business still be operating if the owners were to step away from the business for six months? The more that the owners of the business are effectively redundant, the more a buyer will be prepared to pay.
Strong second tier management: Ensure that there is a management team in place that are not only making day to day operational decisions but are also involved in short-, medium- and long-term strategic decision making.
Management functions: A well diversified management function and clear reporting lines is important to establish robust controls and accountability. Having clearly defined functions such as Managing Director, Finance Director and Operations Director is a key positive for a potential buyer.
Segregation of duties: Sufficient controls should be implemented to ensure that no single individual is solely responsible for key processes and procedures.
Family members: Clearly define family members roles within the business and their intentions post sale. Remove any reliance on family members by sharing duties with other members of the workforce (even if their intention is to remain with the business).
Employment terms: Ensure that there are individual and tailored contracts of employment for all key management and their employment records are up to date.
Workforce
The workforce plays a crucial part in the delivery of a business’s performance and its future growth plans. For a buyer the workforce will be an area of great importance and a significant amount of investigation will be conducted to ensure there is an appropriate level of staffing, balance in management and a cultural fit.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Succession and age profiles: The workforce should be well diversified to ensure that a high proportion are not approaching retirement age and there is suitable succession planning in place to make the transfer of duties seamless.
Training and qualifications: The business should operate a suitable training programme to ensure that the workforce are up to date and compliant with regulations and industry legislation. Promoting internal progression is also key for future proofing the business.
Identify shortfalls and savings: Actively recruit for positions needed to be filled or where there are shortfalls in the workforce and identify areas where the cost can be absorbed by a larger group. A full organisation chart is a useful tool to visualise the workforce, structure and hierarchy of the business.
Employment terms: Perform a periodic assessment of the employees’ terms of employment and remuneration. Are the terms and remuneration levels in line with the market? Would a potential buyer need to make material changes to the existing employment terms to normalise it with its own workforce?
Off-the-record agreements: Identify any off-the-record agreements with employees that should be documented if it would be expected to be honoured by a potential buyer (e.g. access to a pool vehicle).
Culture: The working culture of the workforce is important for a potential buyer to understand. Have clear policies and informal policies documented to ensure a buyer can make a transition as seamless as possible
Systems & Controls
A buyer will want to quickly establish how effective the business’s internal controls are and the systems and procedures that are in place to ensure the business is compliant and is not susceptible to any breaches or victim to potential fraud. A buyer will immediately be filled with confidence if a business has robust, well documented systems and controls in place and makes use of appropriate management systems.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Documented policies and procedures: Ensure all policies and procedures the business adheres to are documented and that all stakeholders of the business have appropriate access.
Risk assessments: Conduct periodical risk assessments on internal policies and procedures to ensure the appropriate controls are in place and are still relevant.
Professional bodies and memberships: Have an active membership with professional bodies and organisations that ensure its members adhere to strict codes of conduct and remain compliant with up to date polices and procedures.
Internal and External audits: An effective way of reporting that controls have been tested and any shortfalls have been acted upon. A third-party audit report will give a buyer confidence the systems and controls in a business have been independently verified.
Management systems: Appropriate management systems should be adopted by the business to set out the objectives that are achievable and measurable in a timely manner.
Responsible individuals: The business should have clear reporting lines established in areas such as health and safety, bribery and corruption and anti-money laundering.
Customers
Buyers will have a particular interest in the customer base of the business they are interested in and during their investigations will look to identify the opportunities, risks, strengths and weaknesses which will ultimately dictate the value applied to the business.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Lower customer concentration: A broad customer base is a key positive for all potential buyers. Ideally no customer should be overly relied on and a rule of thumb is for a single customer not to not exceed 10% of a business’s turnover.
Customer diversification: Diversifying the customer base into multiple markets can protect the business when there are downturns in a particular market.
Commercial terms: Ensure all customers are credit approved and the terms and conditions of sale are well documented. Any special agreements such as rates and discounts should also be clearly documented.
Relationships: Ensure relationships with customers are on an arm’s length basis and are not reliant on a particular individual in the business.
Customer profile: Clearly document the length of time the business has dealt with the customer, the buying habits, the locations of the customer and the recurring nature of the relationship. These details can be important for a potential buyer to understand potential synergies and cross selling opportunities under their ownership
Suppliers
The supplier base can vary from business to business depending on the nature of services and products. For a manufacturing business, a buyer will want to understand the source of supply and terms that this is set to, to ensure the business has reasonable protections moving forwards.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Lower supplier concentration: Reduce over reliance on any single supplier and ensure there are alternatives for all raw materials and products.
Supplier diversification: Ensure the supplier base is well diversified to ensure the business can react accordingly to the demands of the customer base and the marketplace. For example, have UK suppliers to speed up turnaround and overseas suppliers to take advantage of bulk discounts and price savings.
Commercial terms: Ensure the terms of supply are well documented and product warranties are in place. Any supply agreements should also be documented to ensure any breaches can be mitigated.
Relationships: Ensure relationships with suppliers are on an arm’s length basis and are not reliant on a particular individual in the business.
Supplier profile: Clearly document the length of time the business has dealt with the supplier, details of the products sourced, any discounts or special terms and where the supply sits in the supply chain. A buyer will be interested in this information as they may have greater buying power, more favourable terms and discounts, have a central stock function to draw down on and will therefore want to understand where the economies of scale can be achieved by combining the two businesses.
Market Sizing and Competition
A buyer will want to understand the dynamics of the business, the market in which it operates and the unique selling points that differentiate it from the competition.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
SWOT Analysis: Identify the strengths, weaknesses, opportunities and threats of the business to clearly illustrate where a buyer can add value, grow and build and benefit from combining the businesses.
Market dynamics: Understand the key drivers in the market in which the business operates and the key trends in supply and demand. This will enable the owners to future proof the business and sustain the value.
Competition: Identify the key competitors in the market and the areas where the business is superior and inferior and the steps that have been taken to reduce competition.
Unique selling points: Clearly demonstrate how the business is unique by comparison with the competition and the reasons customers choose to do business with it and not the competition. Examples include quality, speed of service, pricing, branding, etc.
Brand: Capitalise on the brand the business has built. Publish success stories, customer wins and enhance the market profile of the business.
Barriers to entry: How difficult would it be to enter the market and grow? Monetise the investment it has taken to reach the stage of life the business is in and the goodwill of the business.
Property
Property can be subjective in business sales transactions as it is very much reliant on the current ownership structure of the property, the buyer’s appetite to acquire property and the future aspirations for the business. Regardless of whether the trading property is being sold with the business or not, the trading property is likely to be thoroughly investigated by a potential buyer. For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Presentation: The trading property is often the first chance to make a lasting impression on the buyer. Site visits are often conducted in business sales transactions and a buyer will want to investigate the condition of the property to ensure it is fit for purpose. Keeping the property in good condition is important as it will reinforce the image the business portrays to its stakeholders.
Health and safety: Ensure periodic safety checks, risk assessments and reports are conducted and that any breaches are acted upon to ensure the trading property is in a suitable condition for the workforce.
Capacity: Ensure the workspace is optimised to provide a buyer with comfort that there is capacity to grow within the existing facilities if they choose to do so.
Documentation: All documentation and records of improvements should be kept on file to provide a buyer with evidence the property is owned or leased and improvement costs have been incurred. Documentation to prove the property is opted to tax (or not) is also important.
Leases: If the property is leased, ensure that the terms and conditions of the lease are not onerous and that there are suitable flexibilities for a potential buyer to have options.
Security: Take actions to make the property and any assets within the building secure and ensure the relevant insurances are in place.
Valuation: Obtain up to date valuations to understand the current market value of the property and rental yields.
Business Assets
The business assets are often needed to generate the profitability of a business and it is important for a buyer to have confidence the business is invested well enough to continue to generate profitably in future years and is able to identify the assets that will be included in a sale of the business.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Well invested business assets: It is important to ensure plant and machinery, computer equipment and motor vehicles are kept in good working condition and are continually invested in to reduce unnecessary down time and repair costs. A business that continually invests its resources back into the business will provide a buyer with confidence there is not an additional injection of cash needed for updating the business assets.
Personal assets: It is inherent with small businesses that that there could be assets owned within the business that are for personal use. It is recommended that all assets that are not used within the core business are identified and separated and removed from the business’s operational assets.
Documentation: Ensure all documentation of ownership, warranties and insurances are in place for business assets.
Leasing: An exercise could be conducted to understand the cost benefits of leasing business assets over owning the assets.
Fixed asset register: An up-to-date fixed asset register should be maintained to keep a record of all business assets and the accounting policies adopted to calculate the value.
Property & Infrastructure- IT Systems
A business’s IT System is an important central resource that holds valuable information about the business and its stakeholders and is key in driving business efficiencies, decision making and managing relationships.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Fit for purpose: Business owners should invest in an IT system that is relevant to its operations and that can produce timely information from a high volume of data. An IT system, if used effectively, can be the link between a business and its stakeholders and a buyer will place a higher value on a business that operates IT systems efficiently.
Analytics: An IT system should be able to generate reports at the click of a button to allow the user to make informed decisions with ease.
Database: The IT systems’ database should be continually maintained by data processors to ensure the most relevant and up to date information is available.
Business efficiencies: An IT system should enable a business to perform tasks more efficiently and effectively utilise the data to develop the business.
Security: A buyer will want comfort that the business’s IT systems are protected and that any cyber security threats are managed.
Up to date: IT systems should be periodically reviewed to ensure that they are still fit for purpose or if there are newer versions on the market.
Cloud: Does the business’s IT system have cloud capabilities to allow the business to manage its system from multiple locations and provide its workforce with greater flexibility?
GDPR: Ensure the IT systems are compliant with data protection regulations.
Property & Infrastructure – Website
A business’s website is often the first point of call for any potential buyer investigating a target. It is therefore fundamental that the website is in excellent working order and makes a lasting first impression on its audience.
For a business preparing for sale, the following actions can be taken to enhance the value of the business:
Visually compelling: Ensure the website is professionally designed and portrays the image of a reputable and successful business.
Functionality: The website should be built to ensure users can find what they are looking for. The navigation of the website should be seamless.
Content: The content should be clear and concise and address the key information the user needs to receive.
Up to date: It is important to ensure the website is regularly maintained and remains relevant with the current activities of the business.
News: Important updates on business successes and activity should be published to build the brand of the business and a positive profile.
Analytics and search engine optimisation: Analytical tools should be used to understand website traffic. Search engine keyword optimisation is also a useful tool to enhance traffic from search engines.
Mobile design: Websites need to be compatible with mobile devices as more and more users are accessing information via mobile devices.
Contact information: Ensure contact information is easily understood to ensure the user can gain access to the appropriate people in the organisation
Social media: If the business uses social media as part of its marketing mix, links should be integrated into the website.