How to Prepare Your Business for SaleMaximise the value of your business before selling it
SELLING YOUR BUSINESS?
PREPARATION IS THE KEY TO SUCCESS!
When Preparing your business for sale
Take a Buyer’s point of view
Most business owners never receive full value when selling their business because by the time they come to put their business on the market, either it is too late to do anything with it or the owner has no energy to properly prepare the business for sale. You need to adopt a strategy well before you need to sell and you need to find tune and maintain that strategy. That is the key to business development.
We advise our vendors to take a good look at their business from a buyer’s point of view. Act as though you are doing due diligence prior to purchase. This applies whether you own a micro-business that operates from home or one that has sales worth of millions of dollars per year. Once you adopt the strategic planning mindset you won’t believe the difference it will make to your business; you won’t believe how simple it is to grow and develop your business. What is your growth strategy?
There are a number of areas you can look at in preparing your business for sale. Each point relates to one of three things:
• Boosting Profit
• Boosting Cash Return
• Reducing Risk associated with your business
Get A Business Check
Want to know how ready your business is for sale. Our Business Check only takes a few minutes and we will be back to you with our expert report. Once you know what your strengths and weaknesses are you can start building a strategy to build the value of your business and get it ready for sale.
Our 20 tips on how to prepare your business for sale for the best price
1. Ask Yourself “Would I buy this business?”
Take a good look at the strengths and weaknesses of your business.
Boost the strengths and fix the weaknesses.
2. History of Ownership – 5 years or more would be acceptable.
If your business does not have a long track record, be prepared to prove profit or sales in some other way by trial or by way of performance clauses to be satisfied prior to full and final settlement.
Without track record on your side be prepared to wait a period before full purchase price is paid. In our current economic climate, whilst history is no sure indicator of future performance, it is easier to predict the future if you have a longer past to go on.
3. Image, Brand & Reputation add Value
Nurture your reputation by the quality of the products and services you deliver.
Always be conscious of the image you project.
A good brand says to the market “Trust me and I will look after you”
You have a personal brand as well as a corporate brand.
4. Client & supplier contracts are in place and in writing where possible.
It might be OK for you to believe your contracts, though oral, are safe, however a buyer needs more assurance. Written contracts provide a measure of that assurance.
If you rely on a single supplier, you are at risk unless you are protected by a long contract and even then there are no guarantees.
5. Patents, Trademarks and Copyrights should be protected.
Consult a patent attorney to see that your logo or company style can’t be copied without impunity.
6. Lease must be of sufficient length and contain reasonable terms.
Negotiate your lease before putting the business on the market.
Have lease read by an expert in lease negotiations.
7. Reason for Sale needs to be genuine.
Don’t invent reasons for sale. Such a strategy is transparent and will not help you realise value for the business.
8. Employees – profiles should be prepared and contracts should be secured.
Your staff is one of your great assets. List their duties, strengths, length of employment, salary, incentives etc.
Tell your key employees that the business is going to be sold. Tell them you will endeavour to secure a future for them in the business if they wish.
9. Current owner’s influence should not be too great.
Give more responsibility to key staff.
Reduce the hours you spend in the business.
A business heavily reliant on the current owner loses value for that reason.
Start by outsourcing and move to hiring others to replace you.
10. Credit rating should be healthy.
Pay your debts on time.
A poor credit history can unsettle a buyer.
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11. Stay up to date.
Many businesses have been seriously affected or have even disappeared due to disruption caused by technology and innovation. To make sure your business is not disrupted, keep up with the current trends and have regular meetings with your staff and other key stakeholders, asking the question “What is up ahead?“
12. Little or No Changes in Key Financial Ratios in recent times.
There are some figures that should remain constant from year to year.
If there is a marked deviation from the standard rise and fall, explain this satisfactorily.
Keep notes to explain why sales might go up or down, and why expenses suddenly blow out.
13. Clients – Good Spread is Better
Don’t have your business too heavily invested in one or two major clients. A good spread of clients makes a buyer feel comfortable.
14. Business is not too Cyclical – Watch Trends
If you do have trends in sales, explain them by way of season, weather etc.
Introduce new lines in your business to help smooth out the bumps.
15. Accurate Assessment of the Competition is made.
List your competitors.
Assess the strengths and weaknesses of your competition.
16. P&L, Balance Sheet and Cash flows
Have the most recent tax return available within three months of the end of financial year.
Keep management figures current monthly and keep a monthly record of cash flows for past two years.
17. Business Plan
Only *17% of those with a business plan actually make it a working plan. Make sure you have a working plan and regularly review it. It can make a foundation of the Information Memorandum we speak of next. (*ABS study 2011)
18. Get an Information Memorandum – Prepared by a Professional.
A business broker can help with this task.
A good Information Memorandum or selling brochure will boost the value of your business.
19. Ensure Systems are in Place
Wherever you can, systemise your business.
Detail your business operations.
Create an operations manual.
Also ensure the sales process is systemised. Avoid the temptation to “binge market”.
20. Form A Team – Hire A Business Broker, Accountant and Solicitor who know something about your business.
Get them involved early.
Selling a business is too complex for the job to be handled properly by the owner.
The professionals will take you through the pitfalls and guide you to the winning post.
Choose those who have experience in your industry and ask those who have used winners in the past to recommend someone. Don’t rely on Google.
Once you have a business strategy, you will see business development go ahead in leaps and bounds. There will be exponential growth in your business.