The sale of a business is typically an emotive situation for the business owner…… and in the majority of cases, something that they are very unfamiliar with. So if you are thinking of selling your business, then consider the following 6 ingredients for a good business sale experience.
Clarity on why you are selling
- This is normally an “ice-breaker” question which comes up in the first few minutes of discussion – so have an answer. Some owners try to be smart and give “the right answer” for why they are selling, but I personally advocate a clean honest response. Be clear on your reason for selling; try it out with a friend or adviser to make sure that it conveys the intended message and then stop. Often a good response is undone by over explaining it.
What you need to prepare
- Financial data needs to be up to date and in order. Most reasonable sized businesses should have monthly data, but as a minimum – have quarterly results available. This should clearly show the performance of the business – before the owners drawings, expenses, loans etc.
- When buying a business, you are buying a “system to make money” so the more defined the systems, the easier it is to sell and the more money you are likely to get. If all of the operational processes, client lists, quoting models etc are all in the business owners head – then without that person, you don’t have much of a system to sell. If you have a unique process that you have developed over time which makes enhanced profits or removes potential sales barriers, then this should be documented and you should be highlighting it as a valuable item.
- Know what you want/need to sell the business for, along with any terms that you would be prepared to accept. Seek some professional assistance in valuing the business but consider also whether you would be prepared to provide any form of vendor finance, or whether you would work in the business for 1-12 months to assist the new owner.
- There is no point selling a business if you simply need to hand the proceeds to the tax man – so get appropriate taxation advice up front. This may sway how you sell the business, or when, or even the way the sale is structured.
The marketing and sale phase
- If you are not experienced with marketing or selling a business, then this is where I recommend using an advisor. There are a few different ways to market a business, either directly to some targeted parties, or more openly to the wider the market, or with a few variations in between.
- Key points that you need to cover include;
- identification of the target market
- preparation of a suitable information memorandum
- consideration of confidentiality during this process (ie. do you want your staff and clients to know that you are selling?)
- the amount of your time that will be expended in running your own campaign – which of course will be drawn away from actually running your business
- the legal aspects of a sale contract – who will prepare it, when and under what terms
- An outside adviser or business broker will charge a fee, so just be clear on what you are getting and then you can make an informed decision.
The easy concept
- In short, you want to have the minimum number of distractions in the way of a potential buyer signing on the dotted line. The greater the number of distractions, the more questions and doubt that appear in the buyers mind – with this often translating into either a long and tedious negotiation, or a lower price. So my guidance is to clean up;
- any long dated or potentially bad debts
- any employee issues or claims
- outstanding legal claims
- excess or obsolete stock volumes
- outstanding supply or production problems
- Leases on premises can be a bit tricky and will really depend on the business and its position. If a business is in a well located site with the premises fitted out for the business, then having extra years on the lease may be a real selling point. Alternatively, if you occupy a generic site – then the new owner may see value in being able to move the business to a better site without having to break a lease. This is an area which requires an individual assessment for each business.
Other things to do
- First impressions count, so clean up the curb side presentation of the business, its office/reception area and then general work areas (office, factory etc). A well-presented business, free of clutter and rubbish, gives the impression of greater control and efficiency.
Post sale plans
- Once a sale has been locked in, then you need to plan for what to do with the funds. This is the time to revisit the tax planning you obtained initially as well as embark on appropriate financial planning. This may sound like pretty obvious advice, but regrettably some sale proceeds are simply spent or gambled away. Business sale monies are a precious asset, so they should be treated as such.
Mixing in these ingredients correctly at the start of a business sale process will position you for a smoother ride as well as a better outcome. It is important to realise that business sales can take a while to come to conclusion, so during this period – remain focused on your business. If your eye is off the ball and the business performance suffers, this will not only leave you with a reduced bottom line, but it will make it tougher to sell and you will get less for it!