Preparing your business for sale

Why preparation changes the price you get

Buyers price risk. Every unanswered question, missing contract or unexplained number becomes a reason to lower the price, add an earn-out or walk away. Around a third of adviser-led sales do not complete, most often over a valuation gap of 11% to 20%. Much of that gap is avoidable.

Preparation works on two fronts. It raises the multiple a buyer will pay, by reducing the risks that push it down. And it protects the profit figure the multiple is applied to, so it survives due diligence instead of being cut back. Most owner-operated Singapore SMEs sell for roughly 2x to 5x normalised EBITDA. A single extra turn on the multiple adds a full year’s profit to the price.

The changes that matter most take time. A new manager needs a year or two to prove they can run things, and buyers want to see clean accounts across more than one year. That is why one to three years is the right window.

Three years out: make the business less dependent on you

If the business depends on you for sales, key relationships, technical work or daily decisions, a buyer sees a business that may weaken when you leave. They respond with a lower multiple, a larger earn-out, or a longer period in which you must stay. Earn-outs of 20% to 40% of the price are common for owner-dependent businesses.

Steps that help:

• Build a second layer. Appoint or develop a general manager or operations lead, and give them real authority.
• Hand over relationships. Introduce key customers and suppliers to other members of the team, so they are not dealing only with you.
• Write things down. Document pricing, processes, supplier terms and how the business runs day to day.
• Step back gradually. Take a few weeks away and see what breaks. Fix it while there is time.
• Keep key staff. Consider retention arrangements for people a buyer will rely on.

A business that can show a year or more of running well without the owner in every decision is easier to sell and usually commands a better price.

Two to three years out: get the accounts ready for a buyer

Buyers price on normalised profit: what the business earns after a market salary for every role you fill, a market rent, and the removal of one-off items. In Singapore filings, these adjustments cut reported profit by 20% to 45%. The cleaner your accounts, the less room a buyer has to argue.

• Separate personal and business spending. Stop running personal costs through the company, or at least record them clearly so they can be added back with evidence.
• Pay yourself properly, or document the difference. Know what a market salary for your role would be.
• Put rent on a market footing. If you own the premises, consider a formal lease at market rent.
• Produce monthly management accounts that reconcile to the annual statements.
• Keep tax filings up to date, and resolve any open queries.
• Record one-off items as they happen, with the paperwork, so you are not reconstructing them years later.
• Do not count temporary tax rebates as earnings. Corporate tax is 17% with partial exemptions, and temporary corporate income tax rebates are not permanent profit.

For how buyers use these numbers, see our guide to how SMEs are valued.

Strengthen the quality of your revenue

Two businesses with the same profit can sell at different multiples because of where that profit comes from. Buyers pay more for revenue that is likely to continue.

• Recurring and contracted revenue. Maintenance contracts, retainers, subscriptions and framework agreements are worth more than one-off jobs. Where you can, move regular customers onto written contracts.
• Customer spread. If one customer makes up a large share of revenue, a buyer will discount the price or tie part of it to that customer staying. Growing other accounts over two or three years reduces the risk.
• Earnings trend. A steady or rising trend over three years supports the price. A dip in the final year before a sale invites hard questions.
• Customer prepayments. Unused packages, memberships and deposits are usually treated as debt and deducted from the price. Know how much you hold.

Leases, licences and contracts: check what will transfer

Many sales are delayed or re-priced because something the business relies on cannot move to the new owner. Check these well before a sale:

• Lease. How many years remain, and does the landlord need to consent to a sale or a change of control? A short remaining term worries buyers, so consider renewing or extending before you go to market.
• Licences. Some licences generally cannot simply be transferred, which usually pushes a deal towards a share sale. Examples include MOM employment agency licences, NEA and PLRD licences for cleaning and security, BCA registration grades, SFA food licences and HCSA healthcare licences. Changes of control of licensed financial advisers need MAS approval. Check the position for your business with your lawyer.
• Customer and supplier contracts. Look for change-of-control clauses that let the other party end the contract if the business is sold.
• Employment contracts. Make sure every employee has a written contract. In an asset sale, employees’ contracts need to be moved across, and the Employment Act has rules on this.

Corporate and legal housekeeping

Due diligence will look at the company itself, not only the trading. Tidy these up early:

• Statutory registers and annual filings with ACRA up to date
• Shareholdings clear, with any old agreements between shareholders documented
• Trademarks, domain names and software owned by the company, not by you personally
• Property, vehicles or equipment used by the business but held personally, identified and dealt with
• Related-party arrangements, such as loans to or from directors, recorded and ideally settled
• Any disputes, claims or regulatory issues written up, so you can disclose them early

Our due diligence checklist sets out what buyers typically ask for, area by area. Working through it a year ahead is one of the most practical things you can do.

Twelve months out: valuation, structure and tax

About a year before you want to sell, turn preparation into a plan.

• Get a realistic view of value. Start with our valuation calculator for an indicative range, then consider a written valuation to test your expectations against the evidence.
• Decide what you want. Your minimum cash at completion, how long you will stay, and what matters besides price. If you are weighing a sale against other options, our guide to succession planning compares them.
• Think about structure. Whether a share sale or asset sale suits the business affects stamp duty, GST and what transfers.
• Take tax advice. Whether your gain is taxed depends on the facts. Our guide to tax and stamp duty on selling a business covers the main points to raise with a tax adviser.
• Plan confidentiality. Decide who needs to know, and when.

Clearmere works with owners at this stage. A written valuation is a fixed fee, agreed before we start and credited in full against our success fee if you sign within 6 months and the sale completes. The sale fee itself is paid only on completion.

Pre-sale preparation checklist

1. Write down why you are selling, what you want to receive and how long you will stay.
2. Appoint or develop a manager who can run the business without you.
3. Move key customer and supplier relationships onto other members of the team.
4. Separate personal spending from the business, and document anything that remains.
5. Prepare three years of financial statements and monthly management accounts that reconcile.
6. Build a normalisation schedule with evidence for each adjustment.
7. Put regular customers on written contracts where you can.
8. Reduce reliance on your largest customer.
9. Check your lease term and whether the landlord must consent to a sale.
10. Confirm which licences can transfer and which cannot.
11. Review contracts for change-of-control clauses.
12. Put intellectual property and business assets in the company’s name.
13. Bring statutory filings and registers up to date.
14. Get an indicative valuation and take tax advice.

What not to do in the year before you sell

• Do not cut costs the business needs to flatter profit. Buyers spot reduced marketing or maintenance, and treat it as a one-off saving.
• Do not let trading slip. Buyers watch the latest months closely, and a weak quarter during the sale gives them a reason to re-price.
• Do not price from listings. Asking prices on Singapore listing sites often run at 4x to 10x stated profit, far above completed deals.
• Do not tell people too early. Staff, customers and landlords should hear on your timing. Our guide to confidentiality and NDAs explains how to manage this.
• Do not hide problems. Issues found in due diligence cost far more than issues disclosed upfront.