Now is the time to start grooming

Every business owner wants to fetch the optimum price for their business. Grooming a business is an effective way to increase a company's value. In a slow market now might be a good time to seriously start looking at how you can increase the value of your businesses over the medium term.

Grooming a business for sale should be considered at least a year before a firm is put on the market. Grooming can be a long process and therefore preparation is key.

Preparing the business is not too different from sprucing up a house before it goes into the estate agent window. The idea is to present it in the best possible light to prospective purchasers and ensure that any issues that might cause concern are being dealt with.

There are several elements to the grooming process and below are some of the critical steps that need to be taken.

Business owners should ensure that they can demonstrate a graduated profit trend for their business. Volatility is not attractive to buyers as it shows that the incumbent management failed to grow the firm at a steady rate. Consistent growth in profits and sales will help to attract interested buyers. Even in this difficult market above average performance when compared to the rest of the sector will be looked upon favourably.

All business relationships should be contracted. Before being put up for sale, companies should review all their business relationships and move any that are not contracted to contracted. Contracted income is viewed as higher quality and so is likely to be more valuable. The same applies to suppliers. If you have a good relationship and services with them then think about agreeing a service level agreement (SLA)

Avoid building up lifestyle business perks. Buyers will be put off if they notice benefits-in-kind paid to proprietors and perks such nannies on the payroll. Buyers are less likely to take a firm seriously if such items are found on the accounts and they can seriously depress profits.

Spending profits on raising the company profile in the years running up to a sale can make a business more appealing.

Timing a sale to coincide with the end of a property lease can attract buyers who may have otherwise been concerned about expensive lease exits.

Administrative costs are often in need of streamlining before a sale. Sellers should consider if their administrative costs can be reduced in order to boost profit margins. However, with respect to property, plant and machinery costs, it is important not to reduce spending on these items to boost short-term profits. The reason being that a shabby factory can really put off a buyer as the first thing they think of is how much am I going to need spend. Also it is often the case that delaying spending on these items just means much increased costs in the future. If a sale doesn't happen you may be faced with a big maintenance bill in the near future.

The appointment of a dedicated business development manager tasked with building on the firm's top line can be a wise investment before a sale. Even when a deal is being negotiated with a buyer, new business should still be being won.

Buyers expect to see a three-year growth plan for a business that is up for sale. They want to know how the company will grow in the future and are less interested in the past. Of course it should be remembered that this is the biggest sale the company is going to do!

It is important that all employees are tied to their contracts with no-poaching clauses and restrictive covenants. Buyers want to know that the firm's greatest assets (the staff) will stick around after the sale is complete.

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