Don’t suffer from lack of planning: preparing your business for sale is essential!
Have you been thinking about selling your business in the last 18 months, or are you thinking to exit within the next 18 months?
According to a study, 60% of business owners that try to sell their business themselves can’t get a deal done; in most cases because of a lack of planning the exit properly.
The biggest mistake business owners make is a lack of planning from Day One!
It sounds silly but you should buy (or start) a business with selling in mind. Unfortunately most business owners wait until a catastrophic event has happened and, all of a sudden they want (or need) to sell it. Typically the business is then trending downwards and it is not making the money it once was. The best time to sell a business is when your business is doing well!!
Have your books in order!
Most business owners live out of their business in order to decrease their tax-liabilities. Usually they they are running all sorts of personal expenses and non-recurring expenses through the business, such as travel, meals, entertainment, repairs, etc. These are true discretional earnings and these expenses should be added back to the bottom line to reflect the actual profit! Keep good records to explain the numbers in a (pre-) Due Diligence.
It is crucial to know your numbers, and not only your Profit/Loss- and balance sheet; you need to keep track of everything you’re doing in Sales & Marketing such as conversion rates per advertising method and how many leads you need to generate to get a customer and the cost per lead.
Know what makes your business valuable
In order to make your business attractive to a buyer you need multiple sources of income, a healthy customer base and a solid management team in place.
Buyers don’t like a business with only a few customers! If they lose any of these customers they could lose all business and go broke.So every buyer would look at how well branded you are and how you are positioned in the market.
Your business will be in one of five categories on the branding ladder:
- Brand Absence: consumers either aren’t familiar with your company or only use it because it is convenient due to its location
- Brand Awareness: consumers are familiar with your brand
- Brand Preference: consumers prefer your company’s products and services over others
- Brand Insistence: consumers are so loyal to your brand that they refuse to use your competitors’ products and services
- Brand Advocacy: consumers are fans who recommend your products and services to others
Most businesses live in ‘Brand Absence’!
Besides this they will look at the Intellectual Property (trademarks & patents or design registrations etc.) and if there are any supply or distribution contracts in place.
Staff is also a key area. Most people don’t want to ‘buy a job’ and having good staff and management in place could secure their investment.
Keep it quiet
The best way to ruin a business is to tell people you are selling the business. Employees, customers, suppliers and landlords will worry they won’t like the new owner and could, potentially, look at alternatives (change is always a good excuse to re-valuate contracts).
In fact, the only people that would love the news you are selling is your competitor who will tell everyone you are “going out of business”, not “selling” your business.
Hire a good business broker
If you can’t tell people you are selling, how are you supposed to do that?
At LINK we have a database of 17,000 buyers looking to buy all over New Zealand. The base has a good mix of people in Auckland looking for businesses in Auckland, as well as people in the regions looking for local businesses, or Aucklanders looking to relocate to the regions because Auckland becomes unaffordable.
Any buyer will have to sign a Confidentiality Agreement (CA) before they receive any information. It is our job to qualify the interested buyer. When a buyer has completed a CA, it doesn’t mean they will automatically receive the information. I have a habit of meeting with the buyer prior to supplying the Information Memorandum (or name and location) of the business.
The key is to find a Business Broker with a proven track record. To qualify I would suggest to ask question like;
- What businesses have you sold and in what industries?
- Do you have a database, and what are those buyers looking for?
- How would you market my business?
- What is your closing ratio?
- Can you provide any testimonials?
- Will you provide me with a free and no-obligation appraisal value?
Selling a business is not an ‘event’ that is happening overnight; it is a process, starting on Day One of opening. It can be a lengthy process. An average business would usually sell between 4 to 6 months* but in the regions you should look at up to 12 months.
FREE LINK Northland downloads:
FREE Booklet outlining the sales process: Managing The Sale of Your Business
FREE Booklet outlining other options to an Exit Strategy