iCLAW has built a reputation for standing beside buyers and sellers of businesses rather than simply transacting and clipping the ticket on the way through. We want what our clients want, and while we always apply an objective, unemotive lens to our advice, there are features of what we do that set us apart from other law firms. One aspect that we pride ourselves on is the ability to prepare a client to sell their business. 

This is not the realm of a traditional law firm, but iCLAW is not a traditional law firm. iCLAW’s purpose is to improve lives, and in M&A transactions the way to do that is to ensure a transaction is successful, bearing in mind that success will mean different things to different people.

A feature of a successful M&A transaction is in the set-up. Abraham Lincoln said that if he had 24 hours to cut down a tree, he would spend the first 23 sharpening his axe. In the world of M&A, sharpening an axe looks like preparing the business for sale.

Here are 5 things that a seller of a business of any size should do before even listing it for sale:

  1. Vendor Due Diligence: The buyer, if they are worth their salt and willing to pay proper money for the business, will do a due diligence investigation into the business. They will look at the financial information, risks of litigation, employee risks, supplier risks and if the transaction is a share sale, then plenty more aside. It isn’t the buyer’s job to find the one thing that makes a good business look bad; it is the seller’s job to find that thing and then fix it or mitigate it. A good buyer will find it anyway, and like any PR expert will tell you, you need to get out in front of it and control the narrative. 

  2. Normalise: A business's P&L and Balance Sheet can be filled with idiosyncrasies of the seller. Weird personal transactions that are effectively drawings, storage or home office costs, and revenue from a related party all need to be rationalised so that a buyer doesn’t need to do as much work themselves. Like staging a house to allow a buyer to see it in the way that they might live in it, a seller of a business should show the business in the best light (don’t mislead, however, that will lead to bigger issues).

  3. Structure: A seller needs to understand and appreciate what is being sold and by what entity/person. A good corporate structure will have a trading entity, a holding entity and possibly a separate intellectual property holding entity. If that structure has been built, the seller may not be the entity that operates the business. The seller may be several entities, or the structure may need to be trimmed up for sale so as to present a nice easy ownership structure. Trading trusts are a quirky one to watch out for, particularly in a share sale.

  4. Time frame (consider Covid, inflation and other odd things): Sellers frequently wake up one morning (usually in January) and decide that they want to sell sometime the following day. Sellers also have, in my experience, an absurd initial expectation of sale value. However, there is no reason why a sale value that is dreamed up at 3am after an epiphany, can’t be achieved if the seller considers postponing the sale for a period to allow value to build up in the business (via strategic growth, revenue growth or margin maximisation).

  5. Clear it out: Tidy up the business premises, the books, any tax plans, and current accounts, sign the deed of lease that has been put off for a decade, fix up the health and safety compliance, the stock in hand or the trade mark renewal. A buyer will pay more if the business is in order.

A good business broker will take a seller through these things (and more), but not if the broker is given two months to find a five times multiple.

This article was written by iCLAW Partner Owen Culliney. If you are selling your business, or have any questions about about any part of this article - reach out to Owen: owen@iclaw.com. It'll be his shout.