How To Sell A Business

Transcription

1 How to sell a business in any market Fundamental Rules to Sell Your Business Rule 1: A business is not like Real Estate in the way it is valued. Real Estate is generally valued on location, bricks and mortar, land, its zoning and the economic climate. Businesses are valued on hundreds to thousands of factors, that all come down to two in particular: profit (earnings) and risk. Even in a bad economy, a well-priced business with low risk and good profit will sell. Rule 2: Get your price right. Price it too low and people will be suspicious and ask what is wrong with it. Price it too high and it just will not sell. When it is priced right, the risk factors are moderate and your buyer demographic is not too narrow, then it will sell. Rule 3: Be prepared to invest some money and properly market your business for sale. You can have the best business in the world at the perfect price, but if no-one knows it is for sale, everything you have worked for and all your efforts will be pointless. Rule 4: Understand your business type. Is it a cash business or is it an asset business. A cash business is one that relies totally on the owner and if the owner stopped working tomorrow the cash would cease. For example, professional sports people - what is the value of their business when they retire? This is an extreme example of a cash based business. Less extreme examples would be professional services - Doctors, Dentists, Engineers, etc. Now consider asset businesses like Apple or Virgin. These are very strong asset based businesses. Typical examples could be Medical Centres, Manufacturing, Wholesale, Real Estate etc. Cash Businesses Higher ROI s Lower ROI s Asset Businesses Once you understand these rules, you will have a better appreciation of where your business fits on Pricing Fundamentals and Market Position.

2 Preparing Documentation The next stage is to price your business properly. A good business broker can guide you to the true market value of your business. That s where Redmako Business Sales can help we have over 12 years of experience in buying and selling hospitality businesses in Queensland. You ll need to be ready with: Previous 3 years' Profit and Loss statements and Balance sheets. Copy of last 3 years' tax returns and any other official tax reporting documents. List of Aged Debtors - 30, 60, 90, and 90+ day accounts. Monthly turnover (in bar chart form if possible). Detailed list of plant and equipment, and fixtures and fittings including vehicle details (year, rego#, model#, VIN#, mileage). Signed copy of lease on premises together with any deed of assignment, extensions and covenants. Signed copies of leases on equipment. Copy of any franchise or licensing agreement. Full details of all personnel (length of service, qualifications, rate of pay, number of hours worked per week). Business name registration details. Company Number. Brief description and history of the business. Selection of photos of the premises. FINALLY: you'll have a realistic expectation of the probable sale price. The Next Steps Once you ve got your documents ready, consider the following: 1. Don't try to sell it yourself! Do it at arm's length using reputable, licensed and accredited business brokers. This will save you an enormous amount of time. At the very least your broker will only put up suitable, fully qualified buyers who are able to complete the transaction, handling all the myriad and specialised details involved. This is also better for confidentiality reasons. 2. Produce the full financials from your accountant, not from your own computer. No serious buyer will accept anything other than accountant's figures.

3 If the time of selling is well past the end of financial year, you will need to supply YTD figures. Yes, there is an extra cost, but if you don't supply them the sale will stagnate. If you are reluctant to provide tax returns because they contain private financial details: first, we ensure the prospective buyer always signs a binding Confidentiality Agreement and, second, put parties' accountants together on the basis that information in the tax returns is confidential to the vendor and is for the purchaser's accountant's eyes only. 3. Provide a complete and up-to-date list of Plant & Equipment. For example, computers must be described accurately, including serial numbers if possible, as well as software with licensing numbers. Remember that on settlement you will have to supply the new owner with a Safety Certificate for all vehicles too. 4. Price the business correctly - neither under-valued or over-valued. As always, the market rules, no matter whether you're selling a house, a car or a business. The value is what a ready, willing and able buyer is prepared to pay. Also, a purchaser will be prepared to pay more if they see your business as 'low risk'. In this case they will accept a lower rate of return from the investment than if it is seen as 'high risk'. 5. Be aware of the potential of the business. This could be in the form of anticipated market growth, untapped markets, introduction of new technology, acquisition of competitors, divestment etc. Be able to point these out to the prospective buyer. Though these factors may not increase the actual sale price of the business in strict dollar terms, they never-the-less underpin the sale and give the purchaser more security in making his/her decision. 6. Tell the staff. Nearly all buyers of businesses are desperate to retain the staff and often insist on a special condition in the contract stipulating that the staff remain with the business after they take over. The staff know the way the business works inside and out. They know all the customers, the suppliers and how the systems work, so why would a buyer want to lose them? Tell the staff this fact to calm their concerns. And, after all, the new owner may make the business grow even faster and bigger than you have, increasing jobs and wages, and job security! We find it is best to explain at the next staff meeting that you've decided to 'test the market' and you've quietly listed the business for sale with us to see what happens, but that everything else will remain 'as is'.

4 7. Smarten it up. We always sell a well-presented business faster, and we get more money for it too! We always get more for restaurants that have shiny kitchens. We always get more for a business that's well presented and looks smart, prosperous and tidy. So paint it if necessary. Clean up the signage and the vehicles. Clean the furniture. Clean the windows. Have the carpets cleaned. Clean up the yard or storeroom and get rid of the rubbish. Do any gardens. Tidy up. You'll be amazed at the increased level of response and interest, because it's these little things that make the business look efficient, well run and profitable. 8. Be prepared to spend the money to promote it. You cannot sell a secret! As a rule of thumb, be prepared to invest around 2-5% of your business s value in advertising. Look at internet business sites, local newspapers, magazines or flyers to similar businesses. Business Brokers often have your best access to qualified buyers. Speak to a Redmako Business Sales Broker to find out how we can effectively market your business or franchise for you. 9. Don't give up! Some businesses are harder to sell than others, usually because they require highly specific skills to run them. Restaurants can often fit into this category. However, when a qualified buyer does show up, the decision is generally fast and the price right. It can happen in a flash. 10. Always, always tell the truth. We have seen sales that were absolute certainties fall over because the vendor tried to 'gild the lily'. If a serious buyer finds out that one thing has been told to him incorrectly, he'll assume there's more or worse also hidden and will back away. 11. Check your Lease. Make sure you have a good Lease on your premises, with options for further terms. This can often bring a sale crashing down if it is not sorted. Be prepared. 12. Seller/Vendor Finance. Sometimes having the right market price on your business is not enough. Today, there are creative ways you can still achieve a fair price for your business and vendor/seller finance is one of those ways. If you are finding it difficult to get a sale over the line be prepared to throw in

5 some vendor/seller finance. This is usually an agreement (legally drawn up), that allows an upfront initial cash payment from the buyer and the balance over an agreed period. Time to Sell! You should now have priced your business to sell with the help of your Broker and you have all the information on hand and it is accurate, true and verifiable. FANTASTIC well done! A well prepared business is 80% SOLD