The process of buying or selling a business can be complex, time-consuming and expensive. For both buyers and sellers, seeking the right advice is crucial to ensure an optimum outcome is achieved. This article outlines answers to some of the most frequently asked questions I get asked by both business buyers and sellers, and is a must read for anyone who has ever considered making an acquisition or taking their business to the market.
Should I or Shouldn’t I?
For business owners, the question of whether to sell your business does not have a clear answer. It is important to seek advice early in your deliberations to understand what the current market value of your business is, as well as the likely chances of a successful transaction. Seeking advice early can help you to best prepare your business for the market, and ensure you receive the best result.
Buying a business is a major financial and emotional commitment. Business buyers should take time to assess their appetite for risk, their investment budget and potential industries of interest. Based on this, buyers should seek advice on what types of business will suit their requirements. By seeking the right advice early in the process, you will be better prepared and informed, giving you an edge over other prospective buyers.
How is a Business Valued?
Valuing a business is a mix of art and science. Certainly, a business’ financial results and physical asset base are major drivers, however there are a range of other non-financial considerations that will have a major impact on the fair market value of an enterprise.
It is important to scrutinise documents including property leases, franchise agreements, employee contracts and supplier agreements. Also look at recent sales of similar businesses to see how the market is valuing different business types.
Just like real estate values, the value of businesses change frequently over time owing to changes in technology, trends, demand and other factors. Because of this, it is important to seek the services of an experienced and market-savvy business valuer to advise you in this area.
What is involved in Due Diligence?
Due diligence is the process whereby a buyer thoroughly analyses a business, with assistance from their advisors prior to proceeding with an acquisition. For business sellers, understanding what to expect from the Due Diligence process will allow you to best prepare for what can be an expensive and time-consuming exercise. For buyers, the careful and thorough completion of Due Diligence is vital to guard against risk, and ensure the long-term success of your acquisition.
A thorough Due Diligence will consider financial matters, customer composition, staff and employment issues, material contracts, taxation matters, environmental issues and related party transactions amongst a myriad of other factors.
Many transactions fall over during Due Diligence. Because of this, business sellers should seek advice prior to taking their business to the market to ensure they are well prepared, and that their business will stand up to the rigour of a buyer’s Due Diligence.
Buyers on the other hand should engage the services of experienced legal and accounting professionals, ensuring their due diligence is completed in a thorough and methodical manner to best protect the value of their investment.
Find Out More
If you are seeking a professional advisor to assist you with the merger, acquisition or divestment of a business with an enterprise value of between $1 million and $50 million please contact Quinn M & A on 02 9223 9166 or submit an online enquiry form to arrange a consultation.