Businesses are sold every day, but selling a business is not always an easy process, unless you are well prepared and have ticked all the right boxes. So let’s take a look at 5 questions you need to address, before you sell your business, to ensure that the selling process runs smoothly and you achieve the best results.
1. Why have you made a decision to sell your business?
You need to determine whether selling your business is not just a knee jerk reaction to a run of difficult business or personal circumstances, or a gut feeling, or whether it’s actually a sound financial decision for the future. Some negative situations can be compounded by putting the business up for sale in order to ‘just to see what happens’; particularly if you have overly high expectations regarding what your business is worth, and also wrongly assume there is actually a market for your business, when there isn’t. On the other hand, you might be considering a ‘planned sale’, which would include consulting a professional business broker, your accountant and solicitor before selling.
Selling because you are seeking to change your lifestyle and/or you are ready to retire and maybe want to take that trip you have always promised yourself are valid reasons, and there is little doubt that selling your business is often the compelling scenario to help boost your retirement coffers, or help leverage your way into other investments or another business opportunity. However, you need to be sure that you you’ve made a ‘thought out decision’, and got the right advice from those who know what the market for businesses is actually doing.
2. Are you ready to sell?
Just because you want to sell your business, doesn’t necessarily mean you’re ready to list it right away. It’s really important to get your paperwork in order when considering selling, so everything is at your fingertips to show potential buyers when they ask questions. You will need at least the last three years Profit and Loss Statements, two years of Tax Returns, some BAS statements, a copy of the lease and an acceptable time period left on the lease, knowledge of your stock level and its cost, and finally, have a handle on the secondhand value of your Plant and Equipment. It is also a good idea to prepare a competitive analysis of your company, a demographic profile of your clients, and market position information to help provide buyers with more evidence of your business’s viability and any growth potential.
3. Is the market right to sell your business?
You being ready to sell your business doesn’t necessarily mean that it’s the ‘right time’ to put it on the market. Therefore, you need to talk with someone who is ‘in the business of selling businesses’, knows what the ‘market demand’ is right now, and what the different types of businesses are realising. So it’s best to discuss how the market is travelling with an experienced business broker who belongs to a reputable brokerage and has a long history of sales on the board.
Selling a business depends on a number of different factors, and one of these factors is definitely ‘the timing of the sale’ – it’s best to sell when your business’s earnings and turnover are on the rise, rather when the business is in decline. Of course, if your business is in decline and you still want to sell, then that may mean you might still find a buyer, but at a lower price than you anticipated.
Another consideration is that some businesses trend in and out of fashion, so sometimes waiting a year or two until consumer interest is reignited may be an option. This may sound like a better strategy in theory, however sometimes in practice, you could find yourself in the same position or even worse off, and receive an even lower price for the business in the future or than now. That’s because the business may decline even further over the period. So be aware that other unforeseen factors may emerge whilst you are waiting for a business to trend back in.
4. Will the business overcome you leaving?
Some businesses are built around a family presence or a particular owner and therefore can have trouble overcoming this negative or ‘risk factor’ when selling. Therefore, if you are wishing to sell your business, you must demonstrate to potential buyers, how the business will function effectively and survive without you being in it and prove you are not the primarily focus of goodwill for the business, i.e. ask yourself how well does the business operate when you are on extended leave for instance?, do you need to train and promote a staff member?, or restructure in some way?
Buyers can be wary of a ‘situation’ occurring when an old owner leaves, which can lead to a loss of turnover, profits, clients, and inevitably market share, particularly in the short term until the business has rebuilt its reputation without the old owner being around. A wise buyer and his advisors will be aware of this problem, so it’s up to the current owner to demonstrate that the business is not dependent on them or any one person and that all things being equal, it will continue to turn a profit, long after the sale is completed.
This is also why selling a business often requires the current owner to offer a reasonable hand over period to allay buyer fears and minimise risk perceptions. It is also why you need a competitive analysis, so you can demonstrate that the success of your business is due to your marketing strategies, current client base, product offering and market positioning, or business uniqueness, rather than any personal traits of the owner.
5. Who do you need on your sales team?
Selling a business is not always easy on your own, so it pays to put together a team of professionals who can help you navigate the sales process. To ensure a smooth sales strategy, you will need an accountant to organise all of your financials, a solicitor to help you through the legal requirements of selling a business, a business broker/appraiser to assess your business and provide a likely selling range, and then a business broker to again help find potential buyers and present the business professionally.
Craig Campbell, Principal, Verified Businesses: “We strive to lead the way in helping business owners understand the process of successfully selling their business”
For help selling a business on the Sunshine Coast, call us on 07 5479 5588 or complete our online enquiry form.