Quite often the question of whether or not to sell your business does not have a clear answer. It is a choice that is fraught with both financial and emotional considerations that can result in some emotive and uncertain decision making. That is why it is important to seek advice early when you are considering selling your business. An objective party can help you clarify why you want to sell and evaluate if you and your business are both ready to go to market.
Alternatively, they can gauge whether you would benefit from waiting a period of time before going to market, plus they can identify if there are certain measures you can put in place now, to achieve a better sale price at a later date. Below we outline 6 things that should be considered when planning to sell your business.
1. Engage your advisor early
It is important to discuss your intentions to sell with your accountant, lawyer, financial planner and M&A specialist so they can assist you throughout the sale process as a successful sale depends on good planning by your professional advisors to ensure a seamless and successful sale of your business. Most people have built their business over their lifetimes and the sale proceeds will make a large contribution to their retirement savings, so you need to ensure that you get the best sale price possible for your business.
2. Find out how much your business is worth
Knowing how much your business is worth is especially important when planning to sell your business. You have built your business over many years and the sale proceeds will generally be used as capital for a new venture or as a contribution to your retirement savings.
Knowing what your business is worth before heading to the market enables you to make an educated decision about whether the sale is likely to provide you with the funds you need for your post sale life. It also helps to pre-emptively address the chance that the true value of your business may not be in line with your expectations.
3. Prepare to sell your business
Careful preparations may involve making small adjustments and improvements that can be made in the lead up to the sale which can add value to your business. For example, you may consider reducing your stock levels should your inventory be too high. Or perhaps, you may work with senior management to ensure they possess all the requisite skills to run the business without your day to day input. Comprehensive preparation will ensure your business is well prepared for the rigours of external examination that are part and parcel of a sale process
4. Plan the sale of your business
The sale process you follow should be carefully planned to help ensure a smooth experience. Consider who would be the best buyer of your business would there be any strategic buyers that may be interested such as competitors, suppliers, customers or employees, how to best manage confidentiality, organise documents ready to show prospective interested parties and set out a timeline for completion
5. Understand and undertake due diligence to ensure any issues are resolved prior to going to sale
Any prospective buyer will undertake a detailed due diligence process to ensure that there are no issues that they need to be aware of and that the business you are selling is achieving what you say it is and to ensure that any issues that can be resolved are done so prior to a prospective buyer undertaking due diligence and finding the issue. Unfortunately, many transactions fall over during due diligence, so it is important to seek advice prior to taking the business to market to ensure your business will stand up to the rigour of a buyer’s due diligence process. The last thing you want is a prospective buyer finding an issue while undertaking due diligence that you are not aware of that could have been resolved as this will give the prospective buyer additional bargaining power and a reason to reduce the price they are offering to purchase your business.
6. Plan for the future of your business
While you may feel ready to exit your business it is imperative to show that it still has opportunities that lie ahead. Prospective buyers will not be interested in a company that has no growth prospects, or worse has already started on a downward spiral. You should ensure that optimal stock levels are held and and potential growth opportunities are undertaken which can add additional value to your business from prospective buyers. The fact that you are now planning to sell your business is no time to rest on your laurels as this will give the impression to prospective buyers that you have not been undertaking opportunities to grow the business.
Our publication, The Definitive Guide to Selling Your Business, provides a helpful overview of the process of selling your business. Download an excerpt now.
If you or any of your clients are currently planning to sell a business in the next 12-24 months now is the time to start understanding what can be done to ensure your business is ready to go to the market. Call on 1300 784 667 or submit an online enquiry today to arrange a consultation with our Director, Michael Quinn.