First Impressions Matter
A well-prepared business is more likely to attract serious buyers and achieve a higher sale price. To make a positive first impression, follow this comprehensive checklist to position your business as a profitable and smoothly operating enterprise.
Key Steps to Prepare Your Business for Sale
1. Organise Your Records
Accurate and up-to-date records are critical. Some business owners are diligent in maintaining detailed accounts, while others may have gaps to address. Start by updating your financial statements, contracts, customer records, staff details, leases, and asset ownership.
Ask your accountant to prepare a set of “normalised” accounts to highlight your business’s maximum operating profits. This involves removing non-operational expenses, such as personal travel or entertainment, and clearly explaining any adjustments to potential buyers.
2. Eliminate Perks and Unnecessary Expenses
Unreported cash sales or personal expenditures paid through the business can significantly affect its valuation. For example, a $20,000 trip paid for by the company is essentially $20,000 off the bottom line and could reduce the sale price by four or five times that amount. Clean up these expenses to reflect an accurate and healthy bottom line.
Review any leased or financed assets to determine whether converting them to owned assets would enhance the business’s appeal. Ideally, start grooming the business for sale as early as possible to optimise its value.
3. Review and Align Accounting Policies
Accounting practices can vary widely between businesses. Buyers value consistency and adherence to industry standards. Align your accounting policies with industry norms to maximise your market value.
For example, tax-driven policies may conservatively report profits, while earnings-driven policies emphasise maximum profitability. Ensure all financial information is current and accurate, and if selling mid-year, prepare interim financial statements.
4. Reduce Owner Dependence
A business is more attractive to buyers if it can operate successfully without the owner’s direct involvement. Work on building a reliable management team that demonstrates the business’s sustainability post-sale.
Many buyers prefer the owner to remain involved during a transition period, which can range from a few months to longer, depending on the complexity of the business. Be prepared to negotiate this as part of the sale agreement.
5. Invest in the Business
Continue investing in the business as if you plan to retain ownership. Healthy investment in assets, technology, or operations signals confidence and positions the company for future growth. Buyers value businesses with a strong foundation and potential for long-term profitability.
6. Consider Offering Seller Financing
Seller financing is a common practice where the owner leaves a portion of the purchase price in the business. This arrangement can boost buyer confidence and often leads to a higher sale price. By maintaining an interest in the company during the transition, you reassure the buyer of its viability and profitability.
Information to Prepare for Potential Buyers
Providing detailed and accurate information is crucial to building trust and confidence with buyers. LINK recommends preparing the following documents in collaboration with your advisors:
- 2-4 years profit and loss accounts
- A list of unusual and/or one-time charges recorded in the accounts
- Marketing materials for your goods or services
- A brief history of the company
- Plant, equipment, including any equipment lease arrangement
- Copy of franchise agreement (if applicable)
- GST Returns for current trading year to date
- Stock value estimate within 10-15%
- Information on the lease, such as the rent, term, renewals, and expenses.
- Staffing numbers, including contractors and part-timers
- Employment agreements for staff
- Information about any patents, licences, trademarks, agencies, or other intellectual property (IP)
- Specifics of any significant benefits or business advantages
- Competitor Analysis
- SWOT analysis
- Organisational chart
- Business plan
Why LINK?
Preparing a business for sale involves numerous steps, and mistakes can be costly. At LINK, we provide expert advice and a structured program to groom your business for divestment. Our proven methodology ensures that every aspect of your business is optimised to achieve the best possible outcome.
From financial preparation to marketing and negotiations, LINK helps business owners navigate the complexities of the sales process, delivering results that exceed expectations. Let us guide you through this critical transition and position your business for success.