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Preparing your business for sale
Team Maddern
29/Sep/2015

You may be retiring, changing direction in life or have met your established goals and the time has come to sell your business.  The pre-sell, negotiations and transition out can be a stressful time in any business owner’s life, but by having a clear plan in place from the moment you decide to sell, the burdens can definitely be somewhat relieved.

Before you sell

It sounds simple, but many people fail to prepare their business for sale properly before putting it on the market. You wouldn’t sell your home without adequate preparation, and your business should be no different.

Planning the sale of your business means:

-Ensuring that your financial records are accurate, detailed and current. Work with your accountant and bookkeeper to make certain that everything is accounted for and that all of your figures can be explained.

-Ensure that your client records and details are up-to-date and take steps to reduce your debtors if applicable.

-Ensure that all of your legal arrangements and any contracts are accurate and up-to-date. This can include employment contracts for staff, lease agreements, client and supplier contracts, intellectual property licenses and trademark registrations.

-Recognise any faults or flaws in your business in advance and take affirmative action to address them. This could be renovations, equipment updates, stock levels, hiring, retraining (or firing) or staff.

-Assess any assets that are surplus to or unrelated to your business, and if they are not relevant or you don’t want to include them in the sale you should consider taking them off the books.

-Consider and confirm whether you are going to inform your staff prior to the sale. If you are, then formulate your “message” and communication plan to ensure that speculation, rumour and gossip do not have an adverse effect on the business. It can often be powerful to include staff early on your decision to sell the business, it creates buy-in for the process, they will not feel excluded or let down and they may even consider buying the business or know someone who could be interested.

How much is it worth?

Calculating the value of your business can be a difficult and sometimes the most contentious part of selling. Obviously you want to achieve the highest price for selling your pride and joy, but you must remain realistic about the value (unless you are prepared to wait years for a buyer). This is why appointing a professional to calculate the actual value is vital – no emotion, no sentiment, just cold hard facts, and hopefully dollars!

There are four methods that are generally used to calculate the value of a business:

– Return on Investment (ROI) – a formula which generally considers the net annual profit divided by the purchase price, or some other similar arrangement.

– Asset Value – going concern – where the tangible and intangible assets of a business are added together to determine value.

– Market Value – multiplying the annual turnover of the business by an industry specific multiple (i.e. 3 x annual turnover = price)

– Cost of establishment – how much it would actually cost to establish a business like yours, including but not limited to buying equipment, training staff, winning contracts or setting up distribution networks or relationships, etc.

Once you know the actual value of your business from an outsider’s perspective, you can then decide whether you are satisfied with this, or would like to receive a higher value. It can be very difficult to put personal feelings and emotions aside when considering the value of your blood, sweat and tears, but you may be very pleasantly surprised.

The actual sale

Any potential buyer will want to know the absolute ins and outs of your business before signing. Be prepared for buyers to ask, as a minimum, the following questions:

– Why is the business for sale?

– What actually is for sale (goodwill, location, customers etc)?

– What is/is there a current business plan? Will this be available for viewing and provided under the purchase contract?

– Has there been a valuation, equity analysis and is there value in the brand name?

Potential buyers will also be seeking information on the following:

– Accounting information and bank records

– Taxation status

– Liabilities

– Compliance with relevant laws and regulations etc

– Terms of any material contracts

– Superannuation plans

– Leave entitlements of staff

– Bonuses and commissions payable

– Intellectual property arrangements

– Property arrangements

– Licensing arrangements

– Restraint of trade issues

– Confidentiality issues

Final Steps

It is important that any potential buyer can see that the business will not only survive, but continue to prosper if you are not in it. Make your role redundant; that is, make it a seamless transition for any buyer to step into your role. Document all policies, procedures and anything ‘unwritten’ that a buyer would need to know in order to operate the business if you left tomorrow. Ensure that each employee has a clearly documented and defined role that is measurable. This will make it extra enticing for anyone considering your business, who will at least feel that they are going to be well supported in the transition process.

If you would like assistance preparing your business for sale, Maddern Accountants have a great deal of experience and knowledge in this area. Please contact our office hereshould you wish to make an appointment with one of our business specialist accounts.

Disclaimer: The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.