SELLING YOUR BUSINESS. GETTING THE BEST PRICE.
GETTING THE BEST PRICE FOR YOUR BUSINESS
Advance planning and preparation are crucial to a successful sale of your business. Selling a business is often the culmination of years of hard work and it can be a difficult and time-consuming task. To get the price you want, you have to get it right the first time.
BUSINESS SELLING TIPS
Potential buyers will want to know why you’re selling the business, especially if you’ve advertised what a great business it is. Honesty is important because it will set the scene for all your dealings with a potential buyer.
Some common reasons for selling include:
The key to selling a business for as much as possible is to plan and prepare for the sale long before you need to. Grooming your business and preparing an exit strategy will allow you to tie up all the loose ends and make the business as appealing as possible to a potential buyer.
IDENTIFY YOUR OBJECTIVES
Note your specific objectives in writing. These might include:
Is your business currently structured in the best possible way for a sale? For example, if the business owns its premises, will this make the business as a whole too expensive for a potential buyer?
If so, consider restructuring the business into two independent businesses: one business owns the building and the other business owns the trading part. You might then decide to sell the trading part and keep the business that owns the building and use the rental income to fund your retirement.
If your business owns expensive plant and equipment, you might follow a similar tactic and split into two businesses – one business owns the plant and equipment that you then lease to the trading business. Speak to your accountant first to find out what other ideas could suit your business before you sell.
Get the right advice
Contact your accountant, lawyer or any advisers or business brokers who specialize in selling businesses. Good advisers can fill many roles, such as:
GROOMING THE BUSINESS
To get the best possible price, you need to show your business at its best.
Demonstrate a good financial record
Buyers will want assurance that your business has a stable history and a sustainable future:
Offer excellent systems
Buyers will see more value in your business if you have good systems and can obtain accurate information quickly. Any errors will undermine their confidence in your business.
If necessary, improve your systems or develop new ones. Show that:
Reduce the buyer’s risk
What steps can you take to make the business less risky from the buyer’s point of view? Some suggestions include:
Marketing the business
Marketing your business to potential buyers has a number of stages.
Find potential buyers, such as:
· competitors, suppliers or customers
· new market entrants, including foreign companies
· your management team
· financial investment companies.
Your accountant or lawyer may be able to put you in touch with interested parties, so share your plans with them.
Make the approach
You may want to keep your own business anonymous by using an adviser or business broker. Alternatively you could directly approach a business that might be interested. Give careful consideration to how you will make the approach – is a phone call or a posted letter more appropriate?
Weighing up offers
There are many ways of paying for and taking over a business and you’ll need to carefully weigh up what is on offer. It’s always important to qualify the buyer – however good an offer may sound, unless it’s properly financed, it’s worthless. Consider the following issues:
What form will the payment take?
You might continue to have some responsibilities and liabilities. For example, you may be tied to warranties and indemnities for a year or longer. You might also be asked, or required, to remain involved in the business but it's important to remember you’ll no longer be in control.
Your attitude to the sale may also be affected by the buyer’s intentions:
Completing the deal
The buyer’s offer will be subject to further due diligence and to a detailed sale agreement. The due diligence may involve the buyer’s accountants and lawyers. The accountants will want to look at every aspect of your business’ finances and the lawyers will want to check that the business has full legal ownership of all key assets (e.g. property deeds and licensing contracts). They’ll also want to look at the legal relationships with customers, suppliers and employees.
Many legal issues may be covered by warranties and indemnities that you, as a vendor, will almost certainly be asked to sign. Read these carefully and get professional advice before you do sign.
You may have to involve certain members of your staff during the due diligence process. Bear in mind the feelings and possible reactions of your employees when communicating your plans, as staff may fear their jobs are in jeopardy. Carefully consider who you’ll tell and when you’ll tell them.