By Antonie van der Hoek, Managing Partner of BDO Cape Town
After having spent a large majority of your time and money developing and growing your business, it is natural that you would want to achieve the best purchase price and terms when the time comes to sell it.
But how do you ensure your business will be in good shape, and achieve the highest possible selling price, when you’re ready to call it a day?
Before you even start the process, it is important to sit down with all parties concerned to ensure that everyone is in agreement. It can be surprising how often, especially in family run businesses, some partners change their minds or were unaware that the sale was imminent.
When people start a business venture, selling it is often the last thing on their mind. However, the sale of your business ideally needs to be part of your overall strategy - and one that you develop sooner rather than later. When you decide to work towards selling the key to success is to have a range of areas which work well across your business.
In order for a business to be attractive to buyers you need a strong brand offering an attractive product or service, which is aimed at the right target market. Coupled with this is strong client engagement and ongoing service, the right skills and experience within your team and solid compliance through good corporate governance as well as excellent budgeting, forecasting and financial management.
When you combine these factors, you dramatically increase your chances of running a profitable business with satisfied clients and a good reputation. This makes your business much more valuable and thus easier to sell.
Tips on how to prepare your business for sale:
Take a long term perspective
Critically consider your business from the viewpoint of a potential buyer. You want to present a successful company in terms of income growth, customer profile, qualifications, brand and reputation, processes, and infrastructure. Take steps to fix any issues like cutting unnecessary costs to improve profit, diversifying the customer base (if reliant on a large customer), and resolving any outstanding tax or employment issues.
Be prepared long in advance
Historic accounts are required, but forecasts of future earnings are also important. Buyers will want to confirm recurring and annuity income.
Be open about any issues early on
Buyers conducting due diligence won’t appreciate surprises, so whilst it is important to present your business positively, you must also be upfront about any possible skeletons such as past complaints etc.
Maintain a business-as-usual mind-set as selling generally takes longer than you think.
Consider taking advice
It is important to have a good business advisory service on your side. An adviser can help you to present your business well in order to maximise price.
Other things to consider when looking to sell your business are:
- Your current client contracts – will they survive a sale
- If your company owns all its intellectual property or do you need to register IP rights?
- Do your employees know about the potential sale and do employees who are integral to the business need to be tied in with retention bonuses?
- Are there any difficult property arrangements that would be unattractive to a buyer that need to be resolved?
- Is your company employee benefit scheme in order?
- Is the company payroll efficiently managed? Is it handled internally or externally?
- Consider your timing – if your business is seasonal there may be a better time of year to be looking for a buyer
Selling a business can be as challenging as buying and managing one. However, with forward planning the process can be much smoother and more effective. Planning for the sale of your business from the beginning and then partnering with the correct professionals to facilitate the sale process, is essential to ensure that you get the most profit from your business.