Formalise your business processes in advance of a sale

Introduction

The process of selling a business is stressful enough without having to worry about whether you have formalised your processes. However, it is crucial that you do this if you are selling to a professional buyer.

We’re often asked by our clients whether it is necessary to formalise their business processes, policies and procedures in advance of a sale. In short, the answer is yes! There are several reasons why this is important but the following are the most compelling:

• Professional buyers will expect to see these elements and without them the purchase process will take significantly longer and be much more challenging;

2 2 Sellers who have not implemented these can expect their valuation to be discounted significantly (sometimes as much as 15 – 20%);

3 3 A professional buyer will be looking for assurances that the business can operate without additional input from current owners which becomes much more difficult to provide when systems and processes have not been formalised

We’re often asked by our clients whether it is necessary to formalise their business processes, policies and procedures in advance of a sale.

There are a number of reasons why it is vital to formalise your business processes, policies and procedures. The first and most obvious one is that they ensure that everyone in the business knows what they are supposed to be doing. This is particularly important when there is an element of change involved, as these policies will ensure that everyone understands their new responsibilities.

Secondly, well-structured policies make it easier for customers to do business with you because they know exactly what you expect from them and vice versa. Thirdly, if any disputes arise (which happens more than we’d like), having documented procedures means those involved can look at past performance and make a decision based on evidence rather than hearsay or assumptions.

Finally – but equally importantly – structured business processes mean staff members will have clear goals in mind as well as an understanding of how they fit into the overall team dynamic

In short, the answer is yes!

The answer is yes! By formalising your business processes in advance of a sale, you’re making it much easier for the buyer to understand what your business does and how it ticks. There’s also less risk of conflict arising later down the track, as both parties have agreed upon what needs to be done. This helps everyone involved with the sale process operate smoothly after the deal has been completed.

There are a number of reasons why this is important but the following are the most compelling.

There are a number of reasons why this is important but the following are the most compelling.

• Conformity to legal requirements – Every country has its own laws relating to the transfer of business ownership and these must be complied with if you want your sale to be trouble-free. The process also needs to be as transparent as possible so any disputes can be resolved quickly and fairly.
• Best practice in the industry – When buyers are looking at your company, they will want an understanding of how it operates and how it has been managed over time so that they can assess whether or not there may be hidden problems lurking within your processes. By having these documented formally, buyers will have an easier time understanding what makes your business tick without needing to ask questions or seek clarification from anyone else (which could lead them down another path).

1. Professional buyers are expecting to see these elements and without them the purchase process will take significantly longer and be much more challenging.

• A buyer will expect you to have a formalised process. If you don’t, the purchase process will take significantly longer and be much more challenging. This is true whether your business has been operating for years or months.
• Without a well laid out and documented system, it becomes difficult for buyers to know how well your company runs day-to-day operations because there are no clear lines of communication between departments or employees.
• Buyers want to be able to see that they can walk into their office on Monday morning and have everything they need in place – whether it’s marketing materials ready for distribution, invoices ready for payment or reports waiting on their desk after attending a trade show last week (or whatever).

2. Sellers who have not implemented these can expect their valuation to be discounted significantly, sometimes as much as 15% – 20%.

• Sellers who have not implemented these can expect their valuation to be discounted significantly, sometimes as much as 15% – 20%.
• Business processes, policies and procedures are a key component of any business. They are important for day-to-day operations but also for the sale of your business. The buyer needs to know that you have structured your organisation in such a way that it can operate without you on board and they need to be assured that all risks associated with transferring ownership are mitigated by these procedures.

3. A professional buyer will be looking for assurances that the business can operate without additional input from the current owners which becomes much more difficult to provide when systems and processes have not been formalised.

A professional buyer will be looking for assurances that the business can operate without additional input from the current owners which becomes much more difficult to provide when systems and processes have not been formalised. The buyer will want to see that the business is operating efficiently and effectively, with a consistent and repeatable approach. This is likely to include:

• ensuring that all staff are working to agreed KPIs, policies and procedures
• ensuring assets are properly managed (i.e., stock tracking software, purchase orders)

Conclusion

We hope that we have been able to provide you with some useful insights into how best to prepare for a sale of your business.