An offer to buy your business from a competitor should be considered a compliment, as the potential buyer’s interest means the strong performance of your business has been identified as a competitor or threat to the success of their own business.
If you do want to sell, you should be able to command a premium or better than usual sale price as the potential buyer will be eager to gain a greater share of their market and snap up your existing customers.
So before you start talking figures and contracts you should consider the following;
Many businesses keep profits to a minimum in order to reduce taxes, meaning financial statements may not reflect both true future profits and business value. It’s a wise move at the start of the sales process to seek a realistic independent value for your business based on reliable future expectations, to avoid selling it at below market value.
Prospective buyers will rely heavily on the information you provide and see this as a key indicator of how well the business has been managed. At a minimum they’ll need to see appropriately prepared and reliable financial statements and ledgers. Most will also seek projected budgets for the next few years, backed by solid research and analysis
Businesses rarely sell for a lump sum payment of cash. Instead, terms such as vendor finance are common and can have complex tax and legal implications. It’s timely to get advice before commencing the sales process and to utilise this regularly during the course of the sale, particularly prior to key decisions being made
Don’t wait until it’s too late to start the selling process. Selecting a time to commence that’s right for you and your retirement plans, while also being appropriate in current market conditions, will give you the necessary time to find the right buyer. Remember, it may take more than 12 months to sell your business!
There is no single calculation such as a multiple or ratio that suits every business. Be mindful that your business is unique and requires a tailored review and analysis to determine its potential market value, as well as a strong understanding of prospective buyers and the price they’ll be willing to pay.
While negotiating with only one buyer may simplify the process, generating interest and offers from several buyers will undoubtedly drive up the sale price and give you a range of different purchase structures for consideration. Potential buyers in your market will often be identifiable, so take the time to ensure these pre-selected parties are all contacted.
Each potential buyer will be looking for different things, such as future cash flow streams, growth potential, return on investment or synergy. Knowing these key factors will allow you to provide information tailored to each potential buyer and their areas of focus, so seek guidance at the first meeting on what’s important to them.
Selling a business that you founded and have grown over many years can be an emotional and complex exercise, fraught with disappointment and contractual minefields. It may be preferable to engage a suitably qualified professional to represent you during the sales process.
As the seller, you’ll need to consider purchase offers from every angle. These perspectives range from personal views such as any requirement for your continued involvement in the business, to financial options such as payment structures and ongoing financial involvement. Naturally any sale should be well suited to your personal aspirations and plans.
Every business seller understandably wants the sales process to be over as soon as possible. But selling a business is one of the largest financial transactions anyone can undertake – so make sure it’s professionally and thoroughly documented.