How to boost the sales value of your company

If you are thinking of selling your business one day, even if it is in 5 years’ time, you need to begin boosting the sale value today.  If and when you finally sell, your buyers, their lawyers, consultants and accountants, will all be looking through your company’s past history… in extreme detail. Possibly for the previous 5 years.   Here’s what you can do now to make sure you get highest price for the sale of your business.

Growth. Steady, financial growth is essential. Have a clear written down plan on how fast the business will grow, and how you are going to achieve it.  When your buyer’s representatives are unpicking your year on year financial statements, they will be looking for anything that can lower the sale price. If your accounts reveal nice and steady revenue and net profit growth,  you’re singing.

Profits.  Very few people are going to buy you, or at least at a good price, if you are not even making a profit.  Do everything in your power to make a profit, and then increase it year on year.  Increase your revenues be it through expanding existing clients, or by winning new business, increase efficiencies and eliminate waste. Is work being duplicated? Are costs being duplicated? Do everything you can to maximise this.  A common way to value a company is to take their post-tax profits and times it by a number- let’s say 5 for example. In this scenario, if you increase your profit by £100, it has increased your sale value by £500. Every pound counts.

No skeletons. Skeletons in the financial closet= price slashing.  Have procedures and processes for most things, in particular everything financially related.  Have a folder for company policies which can be easily reached. They should include things like capital expenditure and sign off policy, expenses policies, credit control procedures- all the basics.  Your balance sheet accounts should be reconciled monthly when you close your books for the month. This may sound standard for many, but so many small companies wait until the end of year only to find a whole heap of surprises. Do you know what’s in your WIP account?  Be OCD.  Spring clean your accounts.

Contracts. Ensure your clients have contracts. They should include payment terms, what work is included and what would be additional cost, termination clauses and insurance coverage including who is  accountable for what.  If appropriate include IP rights. Ensure all your employees have employment agreements too. These should include anti-competitor clauses, especially for senior staff. When you sell a business, there is a risk that clients will go with their account holders should they leave, and not stay with the company. Mitigate this risk, (and avoid the risk being cause for devaluing sale price) by putting in this clause.

Succession planning.  It’s all about reducing risk. When you sell, the chances are once the earn-out is finished, you will be moving on to your next venture.  Who will take your place? Your buyers need to feel confident that business will resume as normal and that there is a plan. Hire your successors now. Train them, mentor them, be sure they are ready when the time comes. And that they want it!

Team.  And what about the rest of the team that make up your company? It’s not always all about the senior guys. Every single employee makes your business what it is. Make sure you have good, loyal, high quality staff who are happy and committed.  They, after all, are what your buyers are buying.

If you would like more information in regards to when to sell your company, how to sell or choosing the right advisor, B Gateway have some good tips here. Preparing to sell your business.

If you are an advertising agency and specifically desire to sell your company to WPP, Peter Levitan has a good article about what to consider. 8 tips on how to sell your agency

 

Want to read my blog as soon as it comes out? Please “follow’ on bottom of page. If you need Finance Director services, from a rolling contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk, email me at sophie@wrightcfo.co.uk or call me +44 (0) 7817 784 603.

 

 

 

 

Sole Trader versus Limited Company – explained.

You’ve made the brave decision to go ahead with your business idea and work for yourself. This is great news. It also means your to-do list is endless.  One item that needs to be on your list, is choosing the right legal structure for you. This process can be daunting.  I outline below, in basic straight forward terms what the options are and why you would want to choose one over the other. The good news is, if the one you’ve chosen does not turn out to be the right one for you, you are allowed to change it.

I am going to compare registering as a Sole Trader versus a Private Limited company as these are the two options you most likely will need to choose between.

SOLE TRADER

What is it?

• Classed as self-employed.
• You are allowed to have staff (just because you are a sole trader doesn’t mean you have to do all the work yourself).
• You are personally responsible for the losses your business makes.
• In the same vein, you retain all profits of the business.

The paperwork.

• You need to complete an annual self assessment tax return.
• You have to pay income tax on your profits.
• You need to pay national insurance.
• You need to register for VAT if takings are more than £82K a year.

Why choose this option?

• You are unsure about launching your idea and want to test the waters first without making too much of a big commitment. Remember, you can change type later.
• Lower accountancy fees and admin expenses.
• You have privacy. There is no need to declare to the world how much you are making, unlike a limited company.

LIMITED COMPANY

What is it?

• A Limited Company is registered at Companies House and has a corporate personality. It is a legal entity. It can be further divided into private and public, but if you are a start-up, I’m going to assume you are interested in ‘private limited company’ as an option and are not quite ready to go public. One step at a time!
• The company is responsible in its own right – finances are separate to your personal finances.
• Profits are owned by the company after paying Corporation tax.
• Company can share its profits.
• “Members” are people who own shares in the company.
• “Directors” are responsible for running the company.
• The legal responsibility of running the company lies with the directors.

The paperwork.

• You need to file annual statutory accounts (it is a criminal offence not to do so).
• You need to send Companies House an annual return.
• You need to send HMRC an annual company tax return.
• As above, you are required to be VAT registered if takings exceed £82K. See advice below re flat rate scheme.
• A director of the company needs to fill in a self assessment tax return and pay any income tax and NI if paid a salary by the company.

Why choose this option?

The “limited” gives the company a bit more weight and appears to be bigger giving more confidence to potential investors, clients and suppliers. Banks also tend to favour limited companies.

Tax savings. Dividends of a limited company are subject to lower tax rates than self-employment income. (0% tax for basic rate tax payers and 10% for higher and additional rate tax payers). You can distribute dividends after 20% corp tax has been paid on profits.

Risk. Shareholders have no personal liability beyond the amount paid for the shares. If you do not succeed, and go bankrupt, it is the company that goes bankrupt, not you.

Raising finance. There is the option to raise funds by selling shares.

Top Tip

• Although you don’t have to register for VAT until you reach £82K income, you may want to register for it anyway. If you have very few purchases, for instance if you are a consultant, then you can register for the flat rate VAT scheme.  Under this scheme, you cannot claim back VAT on purchases (who cares? You don’t have any anyway) and although you can charge out 20% VAT you can pay back less to the government. Exact percentage depends on what your business sells exactly. Essentially, you get to keep some of the VAT. Hooray!

This is of course a basic overview and I am by no means a tax expert. But hopefully this clears things up a bit if you find yourself at this stage of your start-up set up.

Want to read this blog as soon as it comes out? Please “follow” on bottom of page. If you need Finance Director services, from a rolling contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk, or email me at sophie@wrightcfo.co.uk.