ASK US HOW | Selling Your Business
Posted by Michael Derin
Published on October 16, 2013 under NSW Business Chamber Partnership
Selling a business can be a complicated undertaking and involves many factors; such as managing the interest from multiple purchases, engaging the right advisors, let alone the costs associated with the sale.
The process can be particularly onerous for small businesses that lack the expertise, resources and time required to make the most out of the sale and ensure the best price and terms. It’s also difficult to know the best time to sell.
Small businesses should know how to go about preparing to sell their business and how they can best manage the sale process.
HOW CAN A BUSINESS PREPARE FOR SELLING AND PUT A VALUE ON THEIR BUSINESS
Any business that is serious about selling will ensure that their finances are in order and they have accurate figures. Businesses should also:
- Have clear strategies and a business plan in place
- Indentify their selling strategies and understand who can purchase their business and be prepared to present the company for sale
- Having your accounts and the suppliers books in order will show you have made an effort to make the new owners transition an easy one
- Prepare audited accounts and forecasts for the prospective buyer.
- Ready financial statements and projections demonstrating the growth and revenue potential of your business. Cash-flow projections are important for small business buyers.
- Rectify any equipment leases, return unnecessary equipment. Supplier contracts, staff contracts, etc. should be in order.
- Itemise company assets, moveable and immovable.
- Close pending customer accounts.
- Tie up all similar loose ends.
Once you achieve this then you will need to appoint an advisor who can:
- Review the company accounts and normalise the profits for business sale purposes
- Review the potential valuation model for the business
- Review the current tax structure of the business and personal/s and ensure both are structured appropriately
- Develop a financial model on the benefits for/against selling the business/s
SMALL BUSINESS PRINCIPALS COMPARED TO LARGE CORPORATES WHEN LOOKING TO SELL
A small business sale won’t be as complex as a large corporate because you won’t have to consider a multitude of shareholders or any regulatory requirements that a listed company would have to consider.
If you’re looking to sell to a large company you need to consider that they need a high level of sophisticated information in order to attract them to buyers.
You also need to make sure you get the best value out of selling and it is a good idea to bring an experienced corporate advisor to help with the process and to assist you with this process.
MISTAKES TO AVOID WHEN SELLING YOUR BUSINESS
When businesses make mistakes when selling their business and they can lose thousands of dollars in the process. All their hard work and long-term investment does not get rewarded. There are a few common mistakes business make when trying to sell. It is important to know these to help you avoid business sale pitfalls, disappointment and lost money.
Not planning ahead or waiting too long to sell - Waiting too long, or not planning in advance, can cause many business owners to miss their window of opportunity. Long-term planning is key to any successful business sale. By keeping updated records, a detailed business history and sales portfolio on hand at all times, it will make your planning achieve great results.
Not finding the right person to represent your business - Finding the right broker and/or consultant to help you sell your business is crucial to your success. Often business owners go with the first person they meet just to list their business and get the process going. This can cost you time and money in the long run. Within a few months, you may see no results and have to go on the search all over again. Taking time to interview many brokers and looking at a realistic outcome of what is expected will get you started in the right direction.
Thinking you don’t have to promote or market yourself - Thinking an advisor will do all the work in promoting your sale can be a big assumption. You are the best promoter for your business. Who knows your business better than you? No one is more motivated, passionate and knowledgeable about your business than you.
WHAT VALUE DOES A CORPORATE ADVISOR BRING TO A SALE
Selling a business can be a complex process, so it can be good to have an experienced corporate advisor involved to help you make the most of the sale. They can:
- Be involved in the negotiation and with the initial terms of the sale
- Assist with de-risking the business
- Draft the sales agreement
- Review your tax structure for business sale
- Complete due diligence, financial modelling and valuation models for the sale of your business
HOW TO MAKE SURE YOUR BUSINESS IS GETTING THE BEST OUT OF YOUR NEGOTIATIONS
Appoint a corporate advisor who knows how to handle negotiations as they can be intense, time consuming and you have to be objective, which is sometimes hard for a business owner when it comes to their own company. Be proactive and strategically focused and relate the present issues to your overall objective. Successful negotiating means:
- Starting early – preparing for the sale of your business at least a year in advance
- Building a good team of experts around you to advise
- Knowing your business, its strengths, weaknesses and most importantly its financial position
- Knowing your buyer, their needs and priorities
- Taking charge but still controlling the sale.
