Article: Commercial
Key Factors In Successful Business Sales with Anna Collard
Over the past 6 weeks we have been publishing a sequel of articles assisting you in understanding the process involved in managing the sale of your business. We have covered all the topics that are important to provide you with a comprehensive overview of all the steps involved to successfully sell your business.
They included:
• Managing the sale
• Preparing the sale
• Establishing the value
• Identifying & qualifying the buyers
• The Marketing & Sales process
• Due Diligence Settlement and handover
To summerise we shall conclude this series of articles with the key factors in successful business sales and giving you an overview of understanding the business terminology frequently used.
Price it right
If you price your business too high, serious buyers won’t even consider it. Price it too low and you are throwing away hard earned money. Your business broker can guide you on what the market is paying for businesses similar to yours and what else is on the market in the same broad category.
Present it right
You will get a better price if your business looks professional and organised, is clean and tidy in all respects including signage, interior, fittings, office and storage areas.
Your plant and equipment should be in good operational order.
Prepare for the sale
Buyers (and their accountants) will want to see up-to-date figures-financial accounts, daybooks, banking and GST returns. Lease agreements should be available for inspection and ideally have a reasonable term to run.
Being ready with this information keeps the sale moving along smoothly.
Allow time to sell
On average, businesses take three to four months to sell. If you have to sell in a hurry you are in a weaker negotiating position and likely to be disadvantaged.
Write down your systems
Show the prospective buyer how easy it will be to take over. List your suppliers and major customers, the jobs to be done, the hours of operation, service providers, and what records must be kept.
Be totally honest
Don’t try to hide or disguise anything. Any irregularities or problems with a business will almost certainly be discovered by a buyer and their advisors during the due diligence process. It’s vitally important to establish trust up front and right throughout the process.
Use a business broker
Business brokers have specialist expertise derived from many years of experience in business sales. They have the ability to provide advice and guidance every step of the way, protecting your confidentiality, qualifying the genuine buyers and taking care of all the details. When using a business broker you will be left free to do what you do best which is – running the business.
Understanding the terminology used in the industry
Accrual Accounting
Income and expenses are entered into the books at the time of contract instead of when payment is received or expenses incurred.
Barriers to Entry
The degree of difficulty competitors face when entering a specific market, based on barriers such as high initial investment requirements, patents, trademarks and specialist technical knowledge.
Due Diligence
A period of between 10-20 working days approximately where a purchaser is given the opportunity to verify information supplied in the Information Memorandum, and to review other material or documents not previously supplied due to commercial sensitivity.
EBIT
Earnings Before Interest and Tax.
EBPITD
Seller’s discretionary cash expressed as Earnings Before Proprietors Income, Interest, Tax and Depreciation.
EPP
Employment Protection Provision. A clause in employee contracts stipulating how their employment will be handled if the business is sold.
Information Memorandum
A document providing a detailed overview of a business. The document must be drafted to ensure it is accurate and honestly represents the business and its benefits.
Intangible Assets
Non-physical assets such as a customer base, supplier relationships, intellectual property, patents, trademarks, brand names and goodwill.
MBO
Management Buy Out – the company is purchased by existing management.
Net Worth
Assets minus liabilities
NPAT
Net Profit After Tax
Retained Earnings
Profits that are retained in the business and not disbursed to owners or shareholders.
Return on Investment
An indicator of profitability shown as a percentage, calculated by dividing the net profit by the net worth, and then multiplying by 100.
Bibliography:
“The authority on selling business” - LINK Business Brokers Ltd MREINZ
