There are four important stages in the sale of a business:
1. Preparing the business for sale
2. Deciding on a price
3. Identifying the right types of buyers
4. Negotiating the deal.
Preparing the business for sale
Many businesses are operated with the objective of legitimately minimising tax liabilities. Unfortunately, these same operating techniques and accounting practices that minimise taxes may 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 and balance sheets 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 products or services and background on the business
staff details and organisation structure
list of plant, equipment, and any equipment leases
details on customers, suppliers, staff, including copies of active agreements
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 guaranteed rule of thumb. Your business will sell in an open market – the market will determine its true value. The key factors that determine the value of a business include:
recent profit history
general condition of the company
strengths, weaknesses, opportunities and threats relating to your business
market demand for your type of business
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 and likely buyers will become frustrated. If you are too low, you are throwing away hard-earned money and create suspicion. Owners need to get experienced guidance on realistic price expectations based on actual sales.
Identifying the right types of buyers
Accurately describe, assess and “package” the business
Identify the right buyers
Market the business strategically
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 only deal with one party or have to sell in a hurry you are in a weaker negotiating position and likely to get less, so carefully consider the right sale process and sell at the right time for you.
When discussing the business with a potential buyer, tell it ‘warts and all’. If the buyer catches you out, you will lose their trust – and probably the deal.
When a buyer indicates they want to make an offer, this needs to be in writing and in the correct format. Any 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 25 years experience. Particularly important, Jamieson can give you specialised assistance in marketing the business for sale and on realistic price expectations based on actual sales.