Preparing to sell your business

There are many reasons you may be looking to sell including retirement, burnout, the desire to own a bigger business or a competitor has presented you with an unsolicited, lucrative offer. For many business owners, their business represents the culmination of their life’s work and primary source of wealth.

Regardless of your motivation, the sale process can prove to be complex, with considerations including the right time to sell, whether or not to employ advisors, which business valuation method to use, and how to maximise the valuation.

When is the right time to sell?

A buyer wants assurance that the cash flows paid for will be realised after the sale. Selling a business will be easier and the value received by shareholders maximised if the business is growing and profitable. The ideal time for sale is when cash flow, growth, and consequent valuations are going to peak. When there is an anticipated decline in the rate of growth it can result in a significant drop in value, and this is not a recommended time to pursue a sale.

Maximising your business value

Building a solid exit plan can take several years, and business owners ideally should start planning for a sale 3-5 years before they wish to transition out. You have invested in growing your business, so when it comes time to sell, you must do the same.

Consider carefully who the best potential buyer might be and how you will best position your business for sale. Could the business be vertically integrated to become part of the supply chain or distribution chain of the purchaser?

Learn the dynamics driving acquisitions in your industry. Many business owners spend their time focused on keeping the business running instead of devoting energy to planning for its sale. Stay apprised of the motivations for financial and strategic buyers in your industry, as this can help you negotiate a higher exit value.

If necessary, it could be worth adopting efficient operating procedures before the sale. This may involve investments in new equipment or technology, or changes in staffing. Corporations often seek acquisitions that create operating efficiencies or bolster their position in consolidating industries.

The sale process

Be aware of the gestation time it may take to prepare your business for sale, the marketing of it, and the actual sales process.  It can be quick, but equally it can take years!
Some key things to consider:

•  Will the business be marketed with or without the name mentioned, and if without, what is your standard response if someone asks if your business is for sale?
•  Is the valuation likely to align with your expectations of sale price?
•  Are there any parties within the company or connected to the company who could be likely buyers?
•  Are you prepared to leave vendor finance in?  If so, how much and for how long, and what security will you want?
•  Be clear whether you are going to tell staff, minority shareholders, suppliers and customers about the intended sale, and if so, at what point?

An expert can assist you to develop a network of potential buyers and identify the most effective marketing pitch. An experienced financial intermediary with a strong network and marketing knowledge is well-positioned to generate interest in your business. If successful, the price at which you can sell your business will be enhanced by creating competition among buyers in an auction process.