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Top Tips For a Smooth Business Transaction
When selling your business, all you need is a smooth business transaction with no hassle, no surprises or hidden costs involved!
Many business owners underestimate the demands of a due diligence process and the implications of not being prepared for it. In some cases, having a third party carrying out a Vendor Due Diligence prior to the sale process could be beneficial.
You will only have one shot at selling your business so here are some tips to maximise the outcome of the sales process:
• Take Your Time - In general it takes 4 to 6 months to sell a business. Allow at least 6-12 months to properly plan and prepare your business. Start talking to a Business Broker and get a feel for what you can expect during the process, as well as getting all your accounts, processes and procedures in place. In doing all of this now you will have a better chance of the sale process not distracting you from running your business.
• Know Your Buyer - Understand who the most likely buyer of your business is; identify who they are and how they assess value so you can prepare your business to maximise valuation and competitive tension when you sell. Having a Business Broker as a negotiator on your behalf can avoid emotional involvement in the negotiation and keep the name and location of your business confidential until an offer is made.
• Make Yourself Redundant - If you are the key person running the business and want to maximise the price, you need to step away and hire a strong CEO/general manager; this will give a future buyer comfort the business won’t fail without you. Alternatively, if you are an owner operator make sure you pay yourself a wage or shareholders salary. This will show that the business is viable and a new owner can make a living.
• Pay for Some Housekeeping - One of the biggest problems we see is a lack of investment in professionalising the business; sort out financial reporting and accounting (Xero or MYOB for example), get your accounts audited, separate the owner’s affairs from the business and tidy up legal and operational risks.
• Work Your EBIT (or EBPITD/ Retainable Earnings) - Every sustainable dollar added to the EBIT figure is worth ‘x’ times EBIT in value; ideally give yourself two years to realise profit improvement initiatives and demonstrate their sustainability to buyers or investors.
• Leave Something For the Next Guy - Buyers will pay more if there are opportunities for future growth, such as new products, geographical expansion, or new channels; plan and partially implement these opportunities so that buyers can believe them, and therefore be willing to pay for them.
• Timing Can Be Everything! - The SME market in any given industry can grow hot and cold very quickly, and have a large bearing on valuation; get your business in a “sale-ready” condition as early as possible so you can respond quickly to changes in the market.
• Above All; Do Your Homework - You only get one shot at selling your business; engage the help of professionals when required; remember selling your business is a process and not an event. Having the right team behind you will save you money, stress and frustration dealing with (potential) buyers during the sales process.
Article written by Rudy Kokx – Business Broker at LINK Northland