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Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

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Readying for business sale

Written by Greg Millar on July 16th, 2018.      0 comments

The most important steps business owners must take to get a business sale-ready

If you are planning to sell your business, you would be well advised to 'dress' it for success to help attract the best buyers.

business for saleSimilar to when selling a house, there needs to be some preparations. As you move from business builder to owner to seller, you need to ask yourself these questions:

Why are you thinking about selling?

Is it because you have reached a certain stage or age and want to move on? Do you see industry changes taking place that will impact your business going forward? Is your business at its peak and this is a good time to optimise its value? All of these will impact your decisions when you start a valuation process and entertain offers from potential buyers. They will also impact what buyers hear when you explain what makes your company valuable, unique, and worth buying.

Are you selling at the right time or the perfect time?

These are not the same. The 'right' time might be when you think you can cash out, be free from the burdens of running a business, and finally retire. The 'perfect' time though might be when your business is on an upswing, your industry is consolidating, and buyers are searching for successful acquisitions.

What will you do when you’ve sold your business?

This should also be part of your deep-thinking during this process. You’ll need a plan that enables you to enjoy the rewards of the business you grew and sold.

5 functional steps to prepare your business for a successful sale

1. Clean up the financial clutter

Potential buyers are most interested in your company’s core competencies. Consider removing nonessential items such as underperforming segments, non-operating assets, shareholder loans, and minority investors from your balance sheet, as these items can complicate a sale or acquisition.

Many sales are based on earnings before interest, taxes, depreciation, and amortization (EBITDA) so do what you can to maximize your bottom line. That includes cutting extraneous expenses and operating as lean as possible. This may mean that you have to shed staff or close under-performing divisions. It might also mean that you have to start explaining why you’re selling the company.

2. Emphasise the strengths and opportunities

Many business owners nearing retirement often lose their desire to grow the company. However, potential buyers are interested in the company's future potential. This poses numerous challenges. Do you have an exit strategy while preparing your organization for sale? What will a potential buyer want and how can you prepare your company for it?

Remember, a buyer wants quality. Do you have a strong C-suite, a razor-sharp sales team, a pipeline of research and development projects, well-maintained equipment, and a marketing department that's strategically positioning the company to take advantage of market shifts and opportunities? If not, why not?

3. Minimise (or eliminate) risk

It's no surprise that businesses with higher risk tend to sell for lower prices. No company is perfect, but potential buyers will be looking for internal weaknesses and external threats. You should always disclose shortcomings to buyers and then discuss the steps you have taken to mitigate these risks.

It is also important to make sure you are prepared to address the risks before the sale is completed. You probably already know what these threats are, and they may even be why you are selling the company. However, you don’t know the motivations of a buyer. They may want your clients, your position in the market, or your IT capabilities. Ask questions and listen.

4. Prepare a Comprehensive Offer Package

We work with our clients to compile a comprehensive offer package because we know what buyers are looking for. They want more than just financial statements and tax returns when conducting their due diligence. Depending on the industry, they may ask you for business plans, financial projections or fixed asset registers. Many will even ask for copies of significant contracts such as leases, insurance policies, employee non-compete agreements, and loan documents. Before you give out any information to potential buyers, we advise you to enter into a confidentiality agreement (NDA) to protect your proprietary information from leaking to a competitor.

5. Get a valuation

What is the business worth in the current market? This is an essential question that both buyers and sellers will ask. A business valuation will look beyond the net book value and industry rules of thumb to find the answer. For example, a valuation can access private transaction records that offer details on many comparable business sales. These 'comparables' can be filtered and evaluated to develop pricing multiples to value your business. A valuation may also project the organisation’s future earnings and then calculate their net present value. These calculations help buyers set asking prices that are based on real market data, rather than gut instinct.

The best time to prepare for selling is before you are ready to sell. This provides enough lead time to present your company at its best. Consider the future sale as just another part of your strategic planning.

Need advice on getting your business ready for sale?

Whether you’re contemplating selling your business or simply want to discuss how to integrate this planning into your ongoing operations, reach out to the Alliotts team in Auckland. In today’s hot M&A market, we are available to help you prepare your business for a potential sale before interest rates and the supply of businesses for sale rise, leading to lower prices. Call us on 09 520 9200.
 

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