The acquisition market is constantly evolving. And insights into what buyers are looking for change with it. To get your business ready to sell and realize the best possible sale price, it's crucial to understand what creates value and how to minimize the risk profile. Is your business sales-ready?
Relationship between value creation and risk mitigation
Business value is primarily determined by future cash flows and risk profile. The higher the expected cash flows and the lower the risk, the more attractive your business is to potential buyers.
Concrete steps to get your business sales-ready:
- Complete administrative understanding: Complete records are crucial not only for you as a business owner, but also for potential buyers. The lack of essential documentation limits the buyer's understanding which may make the buyer willing to pay less. So make sure your records are up-to-date and complete.
- Reduce dependence on the DGA: Many SMEs are strongly tied to the founder or director-majority shareholder (DGA). Reducing this dependence increases attractiveness to potential buyers. Start transferring knowledge and tasks in time. If you don't manage to reduce the dependency in time prior to the sale, you can consider a gradual transition after the sale.
- Establish agreements and contracts: Buyers seek certainty. Establishing agreements and contracts provides protection for staff, customers and suppliers. Make sure contracts are up-to-date and transferable to the new owner. Suppliers may have so-called "change of control" clauses that prevent agreements made from being transferred to a new owner without consent.
- Optimize working capital: An effective way to increase business value is to optimize working capital. Encourage customers to pay invoices faster and pay suppliers slightly later on average.
- Think about what you want to sell: There are multiple ways to acquire a business. This does not always have to be through buying or selling shares, but can also be through transfer of assets and liabilities. As a business owner, do you have real estate? You can, for example, opt for an asset-liability transaction in order to keep your real estate and rent it out, for example. If you still want to do a share transaction, you can choose to transfer your real estate to another private limited company before selling your shares.
Optimal tax construction
When preparing to sell your business, it is essential to also carefully consider the tax aspects. An optimal tax structure can provide significant benefits when selling. In many cases, businesses start as sole proprietorships or partnerships because of the benefits for startups. However, at the time of sale, these structures are not always ideal because of the taxes to be paid on the book profit.
If your business has shares in a limited liability company, it may be fiscally advantageous to place those shares into a holding structure. The seller can then take advantage of the participant exemption when selling, allowing the gain from the sale of shares to fall tax-free into the holding company.
Please note that the Inland Revenue does not accept changes in legal forms just before the acquisition. So think about the structure of your business in time!
Due diligence research
Before a sale, due diligence often takes place to protect buyers from making decisions too quickly. Avoid pulling out bodies that complicate the negotiation process. So make sure the numbers are in order, but look beyond that. There should be little to no reason for the buyer to doubt the value of your company!
