The Seller’s Journey: Preparing Your FMCG Business for a Successful Sale

Selling an FMCG business takes a lot of preparation, and successful transactions often require years of planning and careful consideration. There are several mistakes that business owners should be aware of when considering selling their business, to increase their chances of a successful transaction.

Who’s In Charge Now? 

Here are several of the frequent first questions a buyer asks: 

• Why are the owners selling their business? 
• Who is going to run the business after the owners exit? 
• Who are the key management personnel? 

This is especially important if owners are considering selling to financial players, who typically rely on someone else to run the day-to-day operations of the business for them. It is important to consider who is going to hold the key customer relationships, ingrained understanding of systems and processes, and uphold the values of the business. Having a second in charge or a CEO employed makes the business more attractive to buyers as it removes dependency on the owner. 

Ultimately, owners should be able to clearly articulate how the business will not only survive but grow without them, and that existing people and processes are readied for the sale. Engaging a corporate advisory service early can help identify key personnel and create a succession plan, making the business more attractive to buyers.

Getting The Books Ready

A business is judged on the financial records it keeps. Incomplete or inaccurate records chip away at a buyer’s confidence and, in turn, the business’ value. As a basic rule, you should be able to provide monthly profit and loss statements, balance sheets, cash flow statements and annual tax returns. Owners need to begin thinking well in advance of any sale about whether their financial information is in order. Company records must be organised to clearly show the business’ current state to buyers in a true and accurate way.

In the FMCG industry specifically, the depth and breadth of customer relationships are important, so buyers often request sales by customer as a way to test a business’ customer diversification. If owners can present strong and wide customer relationships (supported in number of years), buyers will be given confidence that there is minimal reliance on any one customer. Furthermore, the pace at which inventory moves is another key indicator of performance, so sellers will have to provide details of sales and inventory by Stock Keeping Units (SKU) to illustrate this.

Owners often underestimate how much time it takes to prepare Virtual Data Rooms (VDRs) which house documents during a due diligence process. VDRs can take anywhere from weeks to months to prepare and almost always result in complex issues arising, like incomplete reports, unreconciled reports to financial statements or gaps in processes, which owners had not previously considered from a transactional perspective. While no business is perfect, it’s important information deficiencies don’t lead to value erosion.

In Sales Timing Is Everything

Owners must consider timing when selling their business. Both internal and external factors need to be taken into account. 

Internal factors:

• Is the business in a position to sell? 
• Are there any open vacancies for key employees or has there been a recent loss of a significant customer?

External factors:

• Are there any recent government reforms or regulation changes occurring in the FMCG industry? 
• How will the general economy play a part in buyers’ minds?

For example, high interest rates and steady inflation are identified as key impacting factors that may stand in the way of a successful deal, and wariness remains over deal assessments and investigations. The challenge is finding evidence of how resilient a business is amid inflationary pressures and various post-pandemic macroeconomic uncertainties.

Selling when revenue is declining is a big red flag for buyers. Businesses that present growing revenue and earnings, at least in the last 12 months, are much more attractive, but even better would be growth over the last three years. Finally, are buyers currently active and open to further acquisitions?

Know The Value Of Your Business

Attempting to price a business too high can drive away buyers. But pricing a business too low will mean sellers unknowingly leave money on the table that buyers may have been willing to pay for. Many owners can overvalue their business due to the emotional attachment they hold with it. Business owners can determine a sense of their business’ value by completing research into mergers and acquisition (M&A) activities within their industry. However, they must be aware of nuances that can influence the purchase price a seller would consider. Knowing a business’ value will provide owners with the best means to negotiate on price, as they know where the true value lies, without the guesswork.

Bring In The Financial Experts

A common pitfall is that the owner does not have a financial advisor engaged early in the process. Selling a business is a full-time job. Many owners need to focus on running their business and do not have the time commitment available to sell their business on their own nor do they have the detailed knowledge to handle some of the transaction specific intricacies. Having a financial advisor versed in M&A should pay for itself many times over.