You may have heard the saying ‘start with the end in mind,’ however too often business owners don’t do this and put their business on the market at a time when it is just not ready. If the business is not ready for sale a prospective buyer may get scared off during a due diligence process if there are too many unknowns. This will create risk in the buyers mind and devalue the sale price of the business, and therefore lead to the sale breaking down or the business being sold for well below it value potential.
Understand the Value Gap
The good news is that it is never too late to start planning for the sale of your business, you just need to Understand the Value Gap.
The Value Gap put simply is the difference between your aspirational sale price and the value the business would sell for today. Understanding this gap can be intimidating however once you know this you can start to put steps in place to better prepare the business for sale and your premium price.
(You can work with your accountant to understand the value of your business today and ask them how you can improve the value of the business to your optimal sale price.)
Make the invisible visible..
When planning to sell your business either now or in 10 years time you should try to make the invisible visible. Pretend that someone you don’t know is coming to operate your business for 6 months while you are on holidays …and you can’t be contacted. Get everything out of your head and onto a piece of paper. Create a manual for everything you can think of including as an example, how to answer the phone, how to take customer orders, how to create leads, how to convert leads to sale sales, how to produce your product, how to delivering the finished product, how to collect debts and even how to make the perfect coffee. The facts are the more you procedures you can document and make a prospective buyer comfortable on how to run the business the more likely they will buy your business for the price you want.
Once everything is documented and will need to do the same with your staff, customers and suppliers. You should put together an organisation chart highlighting the management lines and roles within the business. All staff should have clearly documented roles and responsibilities.
A handshake is not worth much when it comes to selling your business so you need to get into contract with your customers. If you can lock your customers into long term contracts, this will increase the value of your business and be very attractive for a prospective buyer.
Creating a schedule of suppliers with agreed payment terms will assist a prospective buyer to understand who you are purchasing from and what purchasing power you have if any, so they can better manage their cash cycle should they buy the business.
Arguably the most important part of a prospective sale is the finances of the business. If the numbers don’t stack up, no one will be interested in buying business. Great record keeping de-risks the business in regards to a sale, so if you have great accounting records such as real time reporting on budgets, profit & loss and balance sheets, you will go along way to helping a buyer understand the value of business and the return on their investment.
Get in the professionals
Once you have your house in order so to speak you should be in touch with your advisors to assist you with the sale of your business.
Your will need your accountant to help you to value of your business and understand the tax consequences and concessions available for selling a business. You can also work with your accountant to get a ‘Due Diligence Package’ together that will have you better prepared for the questions of a due diligence so you can respond quickly and comprehensively which will gain confidence in the buyer.
A solicitor will need to draw up the contracts of sale of the business and negotiate terms on your behalf which may protect you in the long run, so don’t hesitate in getting them involved and make sure you are clear on the terms you are agreeing to and signing off on.
How to sell your business
Finally you will need to decide how you will sell your business. The cheapest option to sell your business is to find a buyer yourself. This may be a customer, supplier, associate or an old friend. With social media these days it is easy to reach many people so who knows, you never know who is interested in buying your business.
Conversely to get the best sale price it is critical to have your business truly represented so it will create the most interest from buyers. You can appoint a Business Broker or Corporate Finance Accountant to put together a sale document or Information Memorandum that will position your business in a very attractive way and make it more likely for you to reach a buyer that will see the value in your business.
Both a business broker and a corporate finance accountant can act as your agent when selling a business and will therefore field all enquires and negotiate the transaction on your behalf. Naturally they will charge a fee which is usually a success fee as a % of the sale price. You will need to negotiate and agree on a fee prior to the engagement however don’t be scared to offer them an incentive if they can exceed your expectations.
If you planned your business with the end in mind and operated and prepared it accordingly you may just get that premium price for your business that you have been dreaming of…… Good luck!!