Preparing your business for sale
Business Sales Article
The value of a business can be enhanced through several easy steps:
•Prepare financial statements: Accountants can assist here. The figures of most interest to an intending purchaser are actual income and how it is derived less all the expenditure incurred. Having a clear and concise Income & Expenditure Statement is an invaluable selling tool. Financials prepared for tax purposes are generally designed to show income as low as is possible but, to maximise the sale price of a business, it is important to account for every dollar of income. Undeclared revenue cannot be brought into the mix when valuing a business for sale.
•Contracts: Those contracts with suppliers or customers that would be beneficial to a new owner should be locked in and extended if possible.
•Review leases: If location is important, a buyer should be assured they will be able to stay there for a reasonable period of time. Make sure the lease isn’t due to expire or and finalise overdue rent reviews.
•Operations manual: Many small businesses rely on a mix of procedures that exist inside only in the owner's head. Businesses are more saleable if procedures are clearly systemised and documented in an operations manual so a new owner can take over with minimal training.
•The right ownership structure: Sole proprietorship or partnership businesses may decide to incorporate into a company for two reasons: 1. it’s better to have a limited liability company responsible for payables and other debts to avoid possibly becoming embroiled in a new owner's liabilities. 2. Incorporation provides a clean vehicle for transferring a company in part and in whole.
•Diligent Documentation: Have all appropriate documentation on hand such as leases, sales graphs, employee records, supplier register, GST and bank statements etc. List and briefly profile key customers, suppliers and service providers. A well organised business in with up-to-date figures is much easier to sell at a good price and sends a signal the business is well run.
•Price it right: It’s important a business is properly valued. Based on market knowledge and sales transacted, Bayleys’ Business Division can advise as to what sort of return on investment the market would expect to receive on a specific business.
•Present the business well: Make sure the entire premises are clean and tidy, not just front of house.
•Be honest: Tell it “warts and all” and err on the side of over-disclosure rather than risk a purchaser uncovering something as part of due diligence.
•Give it time: Businesses generally take months to rather than weeks. Selling in a hurry sends the wrong market signals and puts a vendor in a weak position to achieve the best possible price.
•Talk the walk: Buyers respect vendors who can talk knowledgably about their businesses and they are more likely to respect their asking price.