From exit strategies to clean up – here are the top things to consider to help get the best price for your business.
Have an exit strategy
While it isn’t always possible, the best time to plan for the sale of your business is two years before the time you wish to exit.
You also need to:
- ensure your business is running profitably and will continue to throughout the sales process
- understand the complete process involved for selling your business
- be committed to the sale of your business
- know the proportion of equity you want to sell (we usually recommend 100%)
- be prepared for the required level of hand-over assistance
- consider the availability of vendor finance
BMF prepares presentation material that is attractive to the right buyers for your business. BMF will maximise exposure and negotiate price with an acute knowledge of the market. Credibility in presentation and negotiation is vital to achieving the best value for your business.
Make it a team effort
The sales process must be viewed as a team effort. This pooling of resources means that each party (BMF, vendor lawyer and accountant) can contribute their unique knowledge and information to the selling equation. In addition, BMF takes a team approach internally to ensure an optimal result.
If possible, your accountant should also prepare an interim financial statement for current financial year to date. Your staff should be motivated and performing well and it is imperative that you have up to-date employment contracts in place.
Good documentation and effective systems are always attractive to a purchaser.
This may include supplier agreements, contracts with customers and any other legal, procedural or business-related items. You have only one shot at a good first impression, therefore make sure the physical aspects of the company are presented as you would if you were selling your own house.
Ensure there are effective systems in your business
Minimise your business’s reliance on the owner/operator by implementing effective quality and management systems, as well as fully training staff. Change your sales literature to focus on the business rather than the owner.
Optimise your business profits
An owner should optimise profits during the time available prior to the sale. Profit is still one of the most important determinants of price. This may mean owners need to:
- eliminate all private expenditure and ‘abnormal’ expenditure from the company’s financial records
- optimise the staff level and structure
- exercise budgetary control of costs
- maintain or, if possible, improve sales and gross profit
- prepare comprehensive plant lists
- ensure plant is in excellent working order
Focus on increasing sales, reducing expenses and seeking ways to improve operations, as this leads to reduced costs. Operating profits must be ‘normalised’ by adjusting for items such as interest costs, shareholders’ salaries and discretionary expenses not directly related to your business, and any one-off ‘abnormal’ costs.
This task may be carried out by your accountant or broker.
When selling, there are often tax implications relating to the depreciation of your plant and equipment. We strongly recommends tax advice is sought during this process. Should the plant and equipment be sold at a value between the depreciated value and the original cost, you will have a tax liability known as ‘depreciation recovered
Provide the opportunity to extend the lease. Tidy up employment contracts, supply agreements and the property lease.
Choose the right time
Don’t wait until the business has exhausted every opportunity. The best prices are obtained when the business can still offer upside potential to the new owner.
Clean up the premises and the plant. Remember, first impressions are lasting ones. Bring in realistic stock and WIP valuations and eliminate obsolete or slow-moving stock. Sell any excess plant and equipment.
Every dollar you add to your bottom-line net profit could add around three or more times that figure to your business’s sale value. Buyers generally require at least the previous three full years of business financial results.