When selling your business, all you need is a smooth business transaction.
Whether we like it or not, after years (or even decades) of being in business, there will be a time it is time to move on. For many babyboomers it is because they are looking to retire and capitalise on their (also emotional) investments but in most cases they have outgrown their business and it is time for the next step forward or go back to the workforce and work for a boss again. When selling your business, all you need is a smooth business transaction with no hassle, no surprises or hidden costs involved!
Selling a business requires a different set of skills and a different mindset from running one. Before selling a business a business owners should do their homework and give themselves time to explore all potential options before rushing into listing their business for sale. Websites dedicated to educating business owners about the sale process (like Whangarei Business Sales & LINK business brokers) well in advance and have a flexible plan should circumstances change in the lead up to an exit. Engaging with a Business Broker is strongly recommended already in the early stages.
Many business owners underestimate the demands of a due diligence process and the implications of not being prepared for . Having a third party carrying out a Vendor Due Diligence could be beneficial as part of preparing your business for sale. It can be pretty scary and having outsiders come in wanting to scrutinise your business records and talk to your staff, for instance.
You will only have one shot at selling your business so here are some tips to maximise the outcome of the sales process:
Take your time – In general it takes 4 to 6 months to sell a business. Allow at least 6-12 months to properly plan and prepare your business. Start talking to a Business Broker and get a feel for what you can expect during the process, as well as getting all your accounts, processes and procedures in place. In doing all of this now you will have a better chance of the sale process not distracting you from running your business.
Put family first – take family / personal objectives into account prior listing your business for sale; small differences now can become magnified nearer the point of sale and put the process at risk, or lead to family conflict post sale.
Know your buyer – understand who the most likely buyer of your business is; identify who they are and how they assess value so you can prepare your business to maximise valuation and competitive tension when you sell. Having a Business Broker as a negotiator on your behalf can avoid emotional involvement in the negotiation and keep the name and location of your business confidential until an offer is made.
Make yourself redundant – if you are the key person running the business you need to step away and hire a strong CEO/general manager and support team who can prove themselves for at least a year prior to sale; this will give a future buyer comfort the business won’t fail without you.
Alternatively, if you are an owner operator make sure you pay yourself a wage or shareholders salary. This will show that the business is viable and a new owner can make a living.
Pay for some housekeeping – one of the biggest problems we see is a lack of investment in ‘professionalising’ the business; sort out financial reporting and accounting (Xero or MYOB for example) , get your accounts audited, separate the owner’s affairs from the business and tidy up legal and operational risks.
Work your EBIT (or EBPITD/ Retainable Earnings) – every sustainable dollar added to the EBIT figure is worth ‘x’ times EBIT in value; ideally give yourself two years to realise profit improvement initiatives and demonstrate their sustainability to buyers or investors.
Leave something for the next guy – buyers will pay more if there are opportunities for future growth, such as new products, geographical expansion, or new channels; plan and partially implement these opportunities so that buyers can believe them, and therefore be willing to pay for them.
Protect your sale proceeds – any proceeds you make from the sale will be after tax; make sure you have the right tax structure for sale. Also draw up a wealth strategy to protect your post-sale proceeds for retirement and succession.
Timing can be everything! The SME market in any given industry can grow hot and cold very quickly, and have a large bearing on valuation; get your business in a “sale-ready” condition as early as possible so you can respond quickly to changes in the market. (also read this post regarding exit strategies)
Above all do your homework – You only get one shot at selling your business; engage the help of professionals when required; remember selling your business is a process and not an event. Having the right team behind you will save you money, stress and frustration dealing with (potential) buyers during the sales process.
As a Business Broker, I can help you with providing an obligation free chat about your business and a free appraisal to set out your immediate expectations regarding what your business could be worth in this economy. If you do decide to sell privately, read how to avoid bad business deals.
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