Planning and preparation will be necessary to successfully negotiate a sale of your business on the best terms. Here are some important points to remember.
Retirement is an impending and much anticipated change of life for many Baby Boomers over the coming decade or so. It will allow the fulfilment of dreams such as holidays, golf and spending time with the grandchildren.
For the Baby Boomers that own one in three Australian businesses, this will also be a once in a lifetime opportunity to realise financial aspirations through the sale of their business.
However, the bad news is that buyers can be hard to find among the following generation, known as "Generation X". Potential buyers younger than those in Generation X are another option. But with less than a decade in the workforce, all too few of these "Generation Y" members will have the financial resources necessary to buy many of these businesses.
- Information is key - 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.
- The right advice - 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 sale process and to utilise this regularly during the course of the sale, particularly prior to key decisions being made.
- Know the value of your business - 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 sale process to seek a realistic independent value for your business based on reliable future expectations, to avoid selling it at below market value.
- Timing - 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!
- Set formulas - 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.
- Get competing bids - 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.
- Understand your buyers - Each potential buyer will be looking for different things, such as future cashflow 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.
- Negotiating - 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 sale process.
- Considering the offers - 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.
- Cross the Ts - Every business seller understandably wants the sale 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.
And if there happens to be unexpected problems, take heart that these happen during every sale and remember to picture the wonderful holiday, new car or set of golf clubs you'll buy when it's successfully completed.