Accounts and books – prospective buyers will usually require at least three years of accounts so ensure the financial information is accurate and up-to-date. Financial statements will be scrutinised as part of the due diligence process so it is essential they are accurate and up-to-date.
Contracts and recurring income – ensure that your existing contracts are enforceable and, if possible, renew any fixed term contracts that are coming to an end. It might also help to formalise existing commercial relationships into written contracts. Providing some certainty of revenue streams to a prospective buyer will help to sell and get a better price.
Business plan – prepare a business plan including a cash flow and other financial forecasts showing the financial future of the business. A written plan gives potential buyers the comfort that you know where the business is going and how it will get there.
Cash flow – if you are able to show sustainable and growing positive cashflow, it provides credibility to the prospective buyer and will make the business more attractive. Particularly if the buyer is borrowing to fund the deal.
Systems and procedures – ensure your policies and procedures are up-to-date and robust. It will help if a prospective buyer can see that the right processes are in place so that the business functions effectively and is complying with all rules and regulations. Having robust policies and procedures can also help to reduce the number of warranties and indemnities to be given in a sale.
Diversify income streams – aim to diversify your business’ customer base. Any customer representing 10% or more of your business’ income will pose a risk and a prospective buyer will want to carefully review such relationship.
Intellectual Property – protecting intellectual property (eg patents, copyright, brand names and trademarks) may help to sell products/services at higher prices. Consequently, a buyer may pay more for the business.
Capital structure – review the combination of debt and equity financing used to drive your business forwards. Higher debt levels means higher repayments and interest. Refinancing could reduce the repayments and thereby increase the valuation.
Contact Richard Jenkins on 024 7698 0613 or Richard@clariclegal.co.uk for further advice or assistance.
This should not be relied upon for legal advice.
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