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Seven Steps to Prepare Your Business for Sale
If you want to achieve the best outcome, the sale of a business isn’t something that can, or should, happen overnight. In fact, readying your business for sale is something that should take some time and careful preparation, starting a few years out from the sale.
Here are some of the key steps that you’ll need to consider when preparing your business for sale.
Step 1: Eliminate “key person risks”
To ensure that your business is a saleable and attractive business proposition, you need to get it running in such a way that it’s not dependent upon you, or any key client or supplier. This step requires work well in advance of sale.
Step 2: Systematise your business
Develop and document processes to ensure that your business doesn’t rely solely on personal goodwill or the knowledge that’s within your head. Again, this is a step that requires work in advance of the sale. If you don’t already have operating procedures in place, start to develop them at least one to two years in advance of the sale.
Step 3: Make sure that all your documentation is in order
Amongst other things, tidy up all your finances: for instance, reverse out any personal or abnormal expenses, determine the true operating profit for the business and have at least three years of solid financial records to present to prospective buyers. This is unless of course the nature of your business means that finances fluctuate, in which case, take a wider sample of your business’s financial history over a longer period of time.
Ideally, you should also have contracts and agreements in place with key staff and clients, as well as registered leases (if appropriate). Having up-to-date leases provides security of tenure, which is important to most buyers.
Step 4: Engage the right advisors
It’s imperative to have the right team supporting you through the sale of business. Trying to sell a business by yourself is fraught with danger; it usually takes twice as long and, invariably, people don’t get the best result. I always recommend having people that are experienced in going through the process. In light of that, consider engaging a broker to sell your business for you. Your accountant is also crucial in terms of being able to provide advice about the best structure for the sale of business, making sure that you get the best tax outcome at the end of it.
A solicitor should be involved too, to review your agreements and contracts and to ensure that there is good transferability at the time of sale, and to prepare the sale contract. Ideally, a solicitor should prepare this in advance of the sale to avoid delays: time kills all deals.
Step 5: Get a valuation on your business
By getting your business valued, you’ll know where it sits in the market. By having your business benchmarked against similar businesses that have sold recently, you’ll have an indication of how the market will value your business, what you’re likely to receive for the sale and whether the sum will be sufficient for you to consider selling and provide you with the finances necessary to move on to the next chapter. If your business is valued at a sufficient sum, move towards listing the business for sale. However, if the sum is falling short, more time will need to be spent grooming the business for sale.
Step 6: Packaging your business for sale
All the information that you need to convey to potential buyers needs to be properly packaged so that it’s not only presentable, but is something a buyer will want to see. Your key documents in this regard should include an information memorandum and a due diligence report. Again, these documents should be prepared in advance of the sale, to avoid delays and scrambling for documents at time critical points.
Step 7: Choose the right time to go to market
Sadly, I see a lot of prospective vendors being reactive in terms of when they elect to put their business up for sale, often due to circumstances outside of their control. Ideally, be proactive in choosing when you should go to market and plan your exit from the business. In fact, best practice would be to start your business with the end in mind and always be looking towards that exit.
A bit of preparation can go a long way. By stepping away from your business, and creating systems to run it, you are a long way along the track to making it attractive to buyers.
From there, get your finances in order, engage some good advisors, get a valuation, and begin the process of packaging your business for sale.
With the right preparation and good timing, your investment in growing the business will pay off.
LINK NSW, Broker
For further information about this article, contact your nearest LINK Business Broking Office.