Restructuring a Business to Make an Attractive Sale

Restructuring a business to make sale an attractive one; Zafar Rafiq, Corporate & Restructuring Partner at Bexley Beaumont, explains the correct approach to rebuilding a business.

Now is a challenging time to sell any business - let alone one that might not be performing as well as it should be.

The process of rebuilding a struggling company to prepare it for sale must not be rushed - a time investment of two to three years or longer will normally be required to rebuild it, attract the right investors and to achieve the best value.

The question that management must address first and foremost is what factors have resulted in the business ending up in its current state, and then considering what changes can be made. Normally it is operational difficulties that become the catalyst for financial difficulties; is the business not making a profit at the right level, or making a profit at all? Are sales insufficient or generating insufficient margin? Are costs too high, either in respect of purchases or because there are too many staff? An in-depth review of the business is necessary, whether with professional advisers or with the internal management team - the management can only address the issues if they are strong enough to identify the problems quickly and make the right changes.

Every part of the business must be reviewed. For example, you need to assess whether your human resources are performing well - are you employing too many people, and do those people have the right skills? Is everybody busy, or are people not working? If not, can their skills be directed to a function where they will be more productive, or can they be retrained? In many cases, you may need to make the difficult decision to let people go.

Negotiation and communication always have an important part to play in improving profitability. If goods or services are being bought at too high a cost, you should try to negotiate discounts and longer credit terms from suppliers, coupled with reducing the time customers take to pay by billing more frequently or supplying services or products more quickly.

This itself will help to reduce the working capital requirement.

You should use good relationships with bankers, accountants and solicitors to your advantage. Advisors will be able to ensure your structure is correct and your tax savings maximised, and your bank may be prepared to grant a capital repayment holiday on longer-term loans if you can demonstrate an investment in a stronger future and a move towards a leaner business.

If you suspect you are not working in the right area or with the right clientele, you should concentrate on the profitable areas of your business and expand them.

This may involve going into new markets or even making acquisitions, but will usually begin with identifying gaps in expertise and a change in strategy by an effective and determined management team.

Attractive businesses demonstrate a good, lean operational structure, strong working capital management, a strong management team and the people with the ability to deliver the product or service at the necessary level - and, ultimately, generate a healthy profit.

When a business is making money on a sustained basis, the buyers will follow.

To discuss any of the above further, please contact Zafar:  |  07779 643942