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1. Preparing the business for sale.
2. Deciding on a price.
3. Identifying the right types of buyers
4. Negotiating the deal.

1. Preparing the business for sale

Many businesses are operated with the objective of minimising tax liabilities.

Unfortunately, these same operating techniques and accounting practices that minimise taxes also lessen the value of a business.

Thus, there is an inherent conflict with running the day-to-day aspects of a business and preparing it for sale.

It’s important that you have all the right information and details available before you start to market the business, a business well prepared for sale will sell more quickly.

This information is also required to establish the selling price for the business and certain calculations need to be made to work out the true net profit of the business.

Items you should have available are:

  • profit and loss accounts from the previous 3 years.
  • copies of accounting reports for year to date.
  • identify and quantify abnormal and/or non-recurring costs in accounts.
  • identify all items of a personal and non-business nature.
  • copy of the lease if any.
  • information on your product or service and background on the business.
  • staff details and organisation structure.
  • list of plant, equipment, and any equipment leases.
  • copies of active agreements e.g. customers, suppliers, staff.

2. Deciding on a price

There will be many views on what constitutes value. Sellers will have one view, buyers another, accountants another, bank managers another.

What you want for your business, or what it owes you, is not its value and the only ‘rule of thumb’ is that there is no rule of thumb.

The key factors that determine the value of a business include:

  • recent profit history.
  • general condition of the company.
  • market demand for your type of business.
  • economic conditions.
  • ability to transfer goodwill and other intangibles.
  • future profit potential.

If you are unrealistic and price your business too high the serious buyers will not even look at it. Al you achieve is to frustrate the buyers.

If you are too low, you are throwing away hard-earned money and creating suspicion that there's something wrong with it.

We can give you guidance on realistic price expectations based on actual sales.

3. Identifying the right types of buyers

You should seek the help of a professional and experienced advisor to prepare a business before going to market. One needs to:
  • Accurately assess, describe and ‘package’ the business.
  • Identify the right strategic buyers such as those in the same industry (trade buyers).
  • Market the business strategically, approach likely buyers, advertise where buyers will be looking (websites, newspapers)

4. Negotiating the deal

Confidentiality is required from most business owners wanting to sell their business, so it’s a good idea to have any prospective buyer sign a confidentiality agreement.

If you have to sell in a hurry you are in a weaker negotiating position and likely to get less, so sell at the right time for you.

When discussing the business with a potential buyer, tell it ‘warts and all’. Even if it is only a small fib and the buyer catches you out, you will loose their trust – and probably the deal.

When a buyer wants to make an offer, this needs to be in writing and in the correct format.

Verbal offers can become complicated, as they do not detail the terms and conditions of the offer.

As a business owner, you need to ensure you are protected by having the right clauses in the agreement and it is advisable to seek professional advice.

Jamieson can help you in all of the above steps with professional advice based on over 20 years experience.

 

Here’s a tip:
Guess what? Big forecast numbers don’t impress investors, but consistently strong results and realistic forecasts can really grab their interest.

It’s far more impressive to hear projections, time frames and strategies that are believable. So strip emotive language out of your sales pitch and stick to the facts. Your passion for the business will still shine through if you are thorough in your approach and put up supportable, comprehensive projections.