SO, YOU WANT TO SELL YOUR BUSINESS!
You will probably have heard it all before. Things you should do and those you shouldn’t. Usually the tips are from brokers or those people who are interested in marketing and selling your business and the caveat is always that you should not make the sale yourself.
In our time, we have bought and sold a few businesses, and this is what we have found from the owner’s point of view. In other words, from where you are now.
1. HEART OVER HEAD
The first hurdle to get over is your own emotional bias. While your heart and soul have gone into building this company, sweat equity is worth nothing unless you can figure out a way to show its value in hard currency. The right valuation is the one single most important factor in determining how quickly you sell the business.
Take some time to look at the true value of similar businesses. Look at what they sold for and not what they were marketed at.
Look at which businesses sold faster and the correlation between the time to sell and the difference between sold price and marketed price.
Be realistic about your own requirements and what you can afford to sell your business for.
2. FINANCIAL, LEGAL AND COMMERCIAL PREPARATION
During the course of a business sale, your prospective buyer will want to see ‘the facts’ of your business. Therefore, you need to have all your documents completed and organised before you can consider selling the business. If key information and documentation, such as contracts or accounts, aren’t readily available or either party doesn’t respond to queries in a reasonable time the period of due diligence will take longer and cost more.
Review legal documentation – such as leases, contracts and employee paperwork – and make sure it is relevant, up to date and easy to access.
A buyer will want to look at the financials – not just statutory accounts but also forecasts, budgets, and monthly management accounts. This is not the time to posture and negotiate about what information you are or are not prepared to provide. If you make this stage transparent, the deal process will not only go easier but will go a long way to making sure the deal closes.
Ideally, all your transactions, procedures and processes should be recorded in a meticulous fashion.
3. PEOPLE PREPARATION
Many successful businesses are essentially one person operations in that their success is based on the creations, ideas or even charisma of one individual and when that person goes, so does the business. If you want to leave your legacy, then you have to make sure that your people are prepared for your exit and your business values live on. You also need to make sure that you have all your HR issues ironed out and all your employee contracts up to date and valid.
Make yourself dispensable – have a strong management team in place with clear and efficient business procedures and clear communication that can run the business without your daily input. Buyers don’t want to buy a business where the value departs when you do.
Ensure employment contracts with your employees and contracts with any other staff (e.g. casual workers and self-employed consultants) are signed and employee disputes settled (recorded)
Put together a basic employee handbook, containing the key policies and procedures relating to your business all of which should satisfy the minimum legal requirements.
4. UNDISCLOSED EARNINGS
A lot of SME businesses do not declare everything they take out (seller’s earnings). In a cash business it is tempting not to declare all your takings, but as this is not reflected in your financial records it therefore, cannot be added to the value of your business. As you have not paid tax on this income, you have already received the benefit at the front end, but this will not improve the valuation of your business.
If you want to be paid for the full value of your business, you need to declare ALL your income.
5. DIFFERENT WAYS TO CUT THE CLOTH
All-cash sales are unrealistic in today's business-for-sale marketplace. Instead of handing over a big chunk of cash at closing, today's buyers are more likely to seek deferred payments, earn outs or assistance in obtaining third-party financing, or indeed, a combination of any of these. The benefit to you as a seller is that these alternative deal structures can also be more tax efficient for you.
Thoughts of selling your business can be motivated by a range of factors, some of which may be out of your control. Regardless of this motivation, it is important that you feel in control of how the process is conducted and how you feel at the end of it.
We buy businesses even if you don't have everything in complete order and we will try and make it as painless as possible.
The following checklist will help you assemble the documentation you need to be ready for a sale:
¨ Financial Statements for the Current and Past 2-3 Years
¨ Statement of Seller's Discretionary Earnings or Cash Flow
¨ Valuation of Property and Other Assets including Stock and Plant/Machinery
¨ Customer List and Major Customer Contracts
¨ Employee Details with Start Dates and Salaries; Employment Contracts; Employee Handbook
¨ Buildings or Office Lease; Landlord’s Consent
¨ Commercial Contracts; Assignation and Novation Agreements
¨ Equipment Leases and Maintenance Agreements
¨ Business Licenses, Certifications and Registrations
¨ Professional Certificates
¨ Insurance Policies
¨ Other Documents Unique to Your Business
¨ Intellectual Property Protection
¨ Loan Agreements
¨ Any Pending Legal Action
¨ Product/Service Descriptions and Price List
¨ Any Standard Term and Conditions that your Business Trades on
¨ Document your Vital Processes – a buyer will love you for it.