As a small to medium-sized business owner, selling your business is possibly not your priority right now, but in order to achieve a successful sale, you should start preparing early in order to optimise the value that you could receive. The following ten practical steps will guide and assist you to achieve the best value on the ultimate sale of your business.
ENSURE YOUR FINANCIAL RECORDS ARE CURRENT
Know your figures, your Gross Profit, and most importantly your net profit. Up to date financial records or management accounts which can easily be kept on an Excel format, are crucial in determining a value of a business and proving to a buyer that you have a successful and profitable business. Two to three years record keeping is the norm. Buyers usually know the exact net profit return that business requires in relation to the selling price. If this does not match they move on to the next business. The norm is at least a 30% return on investment.
KNOW YOUR REASON FOR SELLING
Purchasers always want to know why the owner is selling. Retirement, time to change and spend more quality time with your family, or are juggling too many business at once and need to focus. Whatever the reason, make it clear and honest.
HOW CRITICAL IS YOUR ROLE IN THE BUSINESS
If you are the business – then it’s time to let go of the ego and delegate. Are you able to make yourself redundant? Try stepping outside your business for a few days, does it fall apart or flourish? The sign of a good business that is ready for sale is one were the business owner responsibly delegates, with systems and procedure in place to ensure the smooth running of the business while they are away. Setup a procedures manual and run it like a franchise.
GET YOUR STATUTORY DOCUMENTS IN ORDER
Your lease is the second most important item after Financials. Is it up to date, have you an option to renew. The document must be readily accessible with all contact details of relevant parties.
Ensure all your employees have current employment agreements and that you have a staff register in place. Maintaining your employees trust and confidence is critical during the sale process. Do you have an up to date asset list with values?
DETERMINE THE BUSINESS VALUE
Attaching a value to your business is always a challenging process. There are several methods that can be applied to the business valuation process and are dependent on the nature of the business. The norm is a multiple of your net adjusted profit, ie after any allowable expenses are added back, ie depreciation (not a cash flow item), and any non-direct items. You might pay a family member to provide services, which the new owner would do themselves.
WHAT IS THE TAX IMPLICATIONS
Have you consulted your tax advisor? When selling your business, taxes are inevitable. Capital Gains Tax now comes into play. Discuss the proposed sales price of your business with your accountant or auditor so you know how to best structure the transaction so there are no unexpected surprises after the transaction is concluded.
ARE YOU CHOOSING AN OPPORTUNE TIME TO SELL?
Timing is critical when selling and that timing could be critical for you and your personal needs or circumstances or for the business and what it might achieve from a sale. As a rule, there are two best times to sell:
- When you have an unsolicited offer to buy your business.
- When you have fully implemented operational controls that
show a high net profit and you are not the business.
IMAGINE YOUR BUSINESS IS YOUR HOME
When we sell our houses or homes we always tend to have a big clean-up, a business is the same. Clean and maintain your operating plant and equipment. Make sure you have up to date service records for critical machinery. Clean and tidy the operating premises and make sure all your operating permits and compliance records are current. Review your inventory and sell all your obsolete or slow moving stock.
THE DUE DILIGENCE PROCESS
Due diligence is usual always a part of a sale, either by a professional or the new buyer doing it themselves. This is normal. It does not mean the purchaser doesn’t trust you. They are simply doing their homework to ensure they know what risk they are taking to invest in your business. Once this is over and the purchaser accepts the outcome of the due diligence, your broker will advise you on the next step – preparing a sales agreement.
HANDOVER AND LETTING GO
You will most probably be required to stay on in the business for some time to ensure smooth handover. Be prepared for the handover, to ensure that the business that you built continues to grow from strength to strength under new ownership.