Preparing a £3m Engineering Business for Sale

The situation

The owners of a general engineering business turning over around £3m had decided to sell. They wanted it ready to withstand the scrutiny a buyer would apply.

We started where we usually do: following the money end to end. How work was won, how it was delivered, how it was invoiced, and how and when cash actually arrived — alongside how the debtor and creditor books were being managed in practice rather than in policy.

What we found

The owners chased their suppliers harder than their customers. This was the finding that explained most of the others, and it was not a process failure. It was temperament. They were visibly anxious about paying suppliers on time, particularly when cash was tight — and markedly more relaxed about collecting what they were owed. Owner-managers very often are. Supplier relationships feel personal and immediate; chasing a customer feels like risking the next order.

Underneath that, the mechanics had drifted:

A self-imposed ten-day delay. When an invoice went overdue, the owners allowed ten days' grace before anyone chased it. On a business of this size that is a standing, voluntary extension of credit that nobody had ever decided to give.

Nobody was certain which customers were on which terms. Some were on 30 days, some on 60, and the distinction had blurred. Average days to pay was 61 across both groups — meaning the 30-day customers were paying at roughly double their terms and nobody had noticed, because the average was never broken out.

Twelve customers were over the business's own credit limits, two of them by tens of thousands of pounds.

One customer on 7-day terms was described as "good for cashflow" — and was a loss maker on half of the work it placed. Fast payment had been quietly compensating for bad margin for years.

What we did

The debtor book

We analysed the twelve accounts exceeding credit limits, expecting to find bad risk. We did not. Against more than two years of payment history, all twelve were worthy of the limits they had been given. They were frequently late — but no later than everyone else, and for the same reason: the collection process. The problem was not the customers. It was the business.

So we went to all of them. Most simply agreed to the terms they had signed up to, which is the usual outcome when someone finally asks. Several did not comply in the following months, and we chased them persistently until the new rhythm became normal. That part is unglamorous and it is where these exercises are won or abandoned — a collection process relaxes back within a quarter if nobody holds it.

The 7-day customer was renegotiated: we moved them to 30-day terms in exchange for an improvement in the price, converting a cashflow habit into actual margin.

The effect ran straight through to the other side of the balance sheet. Once the money owed arrived when it was supposed to, the business could pay its own suppliers to terms without drama — which removed the anxiety that had been driving the behaviour in the first place.

The physical assets

We serviced the main plant and machinery before anyone came to value it. A buyer's valuer assesses what is in front of them, and well-maintained machines in evident working order are assessed differently from the same machines with deferred servicing visible on them. Then a thorough clean-up of the site, for the same reason: a buyer forms a view in the first ten minutes of a visit and spends the rest of the process confirming it.

Then a full stocktake, which identified the slow-moving and obsolete stock every long-established engineering business accumulates. That was liquidated, and the remaining stock burnt down to the minimum needed to service the order book with very limited buffer. Stock is working capital a buyer will scrutinise and discount; obsolete stock is working capital that is simply gone and has not been written off yet. Better to find it yourself than have a buyer find it during diligence and reprice.

Setting the expectation

Finally, we set the owners' expectations of value — built from the asset base, the contract values, free cash, the IP and design authority the business held, and the goodwill the earnings genuinely supported.

That conversation is often the most valuable part of the engagement and the least comfortable. An owner going to market with a number in their head that the business cannot support wastes months and frequently kills a deal that would otherwise have completed.

Where we handed over

We completed the preparation and exited at that point. A brokerage took on the sale process itself.

We would do it differently now. Since this engagement the practice has built the corporate finance experience and the professional network to take an exit through to completion rather than handing it on — the same capability we now use on the buying side. At the time, handing to a broker was the right call and we made it.

What they took away

A business whose numbers would survive examination, with the working capital recovered, the assets presented properly, and an honest view of what it was worth.

The debtor discipline is the part that outlasts a sale. Whoever ends up owning the business, the collection process now works — and it was worth more than it cost before anyone made an offer.

Frequently asked questions

How early should we start preparing for a sale?

Two to three years is comfortable, one year is workable, and three months is a scramble that buyers can detect. This engagement ran eight months and was achievable because the fundamentals were sound — the problems were in process and presentation rather than in the business itself. See our article on getting the debtor book ready for sale.

Does cleaning up the debtor book really affect the price?

It affects two things. Working capital is a real component of value and a buyer will scrutinise it. And a ledger that shows customers paying to terms tells a buyer the business is run properly, which influences everything else they look at afterwards.

Why service the machines before a sale?

Because a valuer assesses the asset in front of them. Deferred maintenance is visible, and it invites the question of what else has been deferred. The cost of servicing is small against the discount it prevents.

Do you handle the sale process itself?

We do now. On this engagement we prepared the business and a brokerage ran the transaction. The practice has since built the corporate finance capability and professional network to take an exit through to completion — see our business exit and sale service.

If you are thinking about selling in the next few years and want an honest view of where you stand, that is where we start. Get in touch.