Even in ordinary times, the sale of a business is unchartered terrain for many people. A year on from the first lockdown, if you own a business in one of the hardest hit sectors during the COVID-19 pandemic you could be forgiven for feeling you’ve had enough and now might be the time to sell up. Given this is likely to be something that you only go through once in your life, it is absolutely vital that you get it right first time, with the right advice and support.
Hopefully, these six pointers provide some food for thought if you are considering selling your business in the hospitality, leisure and tourism sector whilst COVID-19 continues to have an impact:
I’ve come across many hospitality businesses that don’t have a clear view on profit until their year-end statutory accounts are prepared - which can be eight or nine months after the year-end. A buyer will want reliable and readily available management information so they can understand the real financial impact of COVID-19 on trading. Monthly management accounts, statistics relating to wet and dry gross margins, average room rates and occupancy levels are all essential pieces of information.
If you’ve diversified your sales by selling takeaway food, at home meal kits etc. then a buyer will also want to understand the impact of these changes. Can you separately identify the profits for each revenue stream? Do you understand and can you demonstrate the impact of cancelled/rearranged bookings and the financial value of any discounts/incentives offered to customers? If you sell gift vouchers, can you explain how these are controlled and what you are doing about expiry dates which have passed with the vouchers unused due to lockdown? Do you know the impact on your accounts of extending expiry on these?
Going forward, you will also need to consider the cost of additional health & safety measures, and the potential reductions in income due to restrictions on space and capacity due to social distancing measures. How will this impact cash flow and profitability? And therefore the value of your business?
Any buyer will almost always want to do both legal and financial ‘due diligence. This is the investigation and research carried out by the buyer and their advisers into the business’ affairs; it highlights risk and identifies areas where the buyer might be exposed to future losses and costs. For the sellers, this will be the most labour-intensive part of any sale. However, if everything is in order and readily obtainable, not only does it reduce the time the due diligence process takes, but it also avoids any last-minute price reductions as a result of gaps in information that increase a buyers view on risk.
In a hospitality business, staff contracts, supplier agreements and documents relating to the property within the business are often areas where there is frequently missing documentation. The more gaps in evidence and records the due diligence identifies, the more the buyer thinks – ‘what else have they missed or not done?’ In respect of the widely used furlough scheme in the last year, buyers will likely want assurances that the scheme has been used correctly and that claims have been calculated properly. From a health & safety perspective, ensuring your business has all the adequate policies and procedures in place and you can demonstrate these are followed will also be necessary.
Many businesses in the sector will have undoubtedly taken government support in some form. Whether that be through grants, the furlough scheme, VAT deferrals, bounce back loans or Coronavirus Business Interruption Loans. Have you factored into your planning if/when these need to be repaid? How this will impact your cashflow?
Businesses are commonly sold on a ‘cash-free, debt-free’ basis, meaning buyers will often want to see all debts repaid before or at completion. The level of debt in the business will not only impact operational cashflow but it could have an impact on the overall value of your business.
There are buyers out there that are looking for distressed businesses to acquire at bargain prices, but assuming you are looking to maximise the value of your investment into the business, you need to think about how you can demonstrate a resilient and versatile business that has a stronger chance of still attracting a premium, despite COVID-19.
What corrective actions have you taken? Did any of your staff transition to remote working? How did you adapt your marketing? Have you managed to retain key staff? Were you able to permanently/temporarily reduce overheads? Did you provide temporary services e.g. at home meal kits? Takeaway services? How have you altered your refund/gift voucher policies?
While you may have a fantastic relationship with your accountant, not all accountancy firms have specialist corporate finance teams and, although they may have the ability to sell your business, they won’t necessarily have the experience or dedicated resource to ensure you get the best outcome.
Specialist advice, careful planning and structuring are essential and can make the difference between achieving the best outcome, merely achieving an outcome (which may not necessarily be the best one) or languishing on a business for sale listing until you give up on the process entirely. A good corporate finance adviser will add more value to a sale than the fees they charge.
When you do find a buyer, you will need to work out what you actually want to do with the proceeds of the sale. It may be that once you’ve cleared any outstanding liabilities, you are left with a sum of money that you need to use to fund another project or supplement your retirement. A joined up approach between a Corporate Finance Adviser and a Personal Financial Adviser can help introduce ideas that can assist you in extracting money from the business as tax efficiently as possible. An example of this may be a company pension contribution prior to the sale of the business, to help extract some money from the business before a potential tax charge is incurred, or it may be that you simply need some help with a retirement plan or cashflow forecast as you plan the next stage of your life. Professional Financial Advice is key to ensure your money is working as hard for you as it possibly can.
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