Building up to Succession
Building a business has many parallels with completing a manufacturing project. To get started you need the right materials, reliable people, and a clear plan. For it to be a commercial success, you should also consider other key factors like timing, location, and demand. Once the business has been built, and the owner-manager has grown […]
Building a business has many parallels with completing a manufacturing project.
To get started you need the right materials, reliable people, and a clear plan. For it to be a commercial success, you should also consider other key factors like timing, location, and demand.
Once the business has been built, and the owner-manager has grown it over a period of time, there will come a point when it is appropriate to consider the next stage: succession planning. This can take many forms: handing it over to the next generation in a family business, an MBO by a management team, or a sale to a third party.
Selling to a third party, whether a trade buyer or a financial investor, requires careful planning and preparation.
Making the business fit for sale requires some finishing touches. A buyer of a company will be interested in the core elements of the business. What does the business do well? Why should they buy it? Where will the buyer be able to unlock value?
A strong system of controls gives confidence over the financial results presented and reduces the risk of historical errors. Regular financial reporting provides an up-to-date picture of the business’s performance. It also demonstrates that the existing leadership has a finger on the pulse.
Forward-looking financial information helps to paint a more complete picture of the business that the buyer is considering. Knowing where a business expects to be is often the key to assessing its value.
A strong management team also gives a buyer confidence in a business. This is something that cannot be scrambled together ahead of a planned business sale. Instead, it requires time and effort to foster talent within a team of dedicated managers and directors, who can run the business and allow the founders to focus on more strategic goals.
Buyers will usually also be interested in understanding the customer base of a business. Are there written contracts and business terms? What percentage of the work is repeat business? What is the split of revenue by customer, geographic region or product type?
All of the above helps to simplify the due diligence process, giving the buyer the tools that they need to assess a business acquisition opportunity. From a seller’s perspective, this confidence in the business from the buyer, helps to unlock additional value in the sale.
It is never too early to start preparing for succession. Whilst this doesn’t have to involve a detailed plan, it is worth considering how prepared the business is in each of the aforementioned areas. If you are considering a sale, or looking at another form of succession, start speaking to your advisers early. Our experienced Corporate Finance team will welcome a conversation about the areas you can build upon, to put your business in the best possible position ahead of a future sale.