8 Key Issues to Consider Before Selling Your Business

by 6th of October, 2022

8 Key Issues to Consider Before Selling Your Business

When the time comes to sell your business, you would expect to get the best price possible for your years of effort. Make that process as easy as possible by addressing some key issues, that would make your business more appealing, than others that a prospective buyer may be considering.

BE COMMITTED

Selling your business is a detailed and strategic process and if planned and executed properly, can lead to achieving the highest possible sale price for your business. However, there is no sense going through the motions, if you are not mentally and financially committed to selling the business. Discuss the sale in advance, with all parties directly connected and impacted by the sale. Evaluate your financial needs, so there is less hesitation once an attractive offer comes your way.

THE BUYER’S PERSPECTIVE

While this may seem an odd consideration, it is necessary – is your business saleable? Look at the sale transaction from a buyer’s perspective and access whether you would be willing to buy your business. If not, what are the primary reasons for this and then address those issues before putting the business on the market, in order to make the business more attractive to a buyer.

ENGAGE PROFESSIONAL PARTNERS

Selling a business is a complex transaction and it is advisable to have qualified experts to help with the transaction. To avoid delays and misunderstandings, do not wait until you have an offer in hand to consult your advisors. If your solicitor is not well-versed in small business transactions, interview others. You are unlikely to reach settlement if your advisors do not clearly understand your ambitions. A strong professional team is a great asset in growing your business and in helping you obtain maximum value when you sell your business.

DETERMINE THE ASKING PRICE

The asking price is one of the first factors that a prospective buyer is going to focus on. Set the asking price within market expectations as this will allow the buyer to see genuine value. Too often, there is a large difference in the actual market value of a business and the value that the owner expects to sell it for, to achieve their needs. Buyers and sellers often try to bridge the valuation gap during the sales process with mechanisms such as earnouts or vendor financing. Valuation gaps are a common reason that many business sale transactions fail to complete.

HAVE ACCURATE DOCUMENTATION

Give the buyer as much accurate information about your business including history, audited up-to-date and historical financials, milestones, awards, staff and most importantly a credible reason for the sale of the business. Having operational manuals, documenting all systems and processes, will be an enormous advantage to a buyer, with the knowledge that good operational protocols are in place.

DETERMINE A GROWTH PLAN

Most buyers are keen to continue the successes of the business and more importantly see how the business can grow further. If you have a written growth plan outlining how the business can be further improved, will make the business very appealing to a genuine buyer. Some of the suggestions that may be put forward could be:

What additional markets could we pursue?
What additional products could we deliver to our same customers?
What segments of my current market offer the most growth potential?
Where are the best margins in our customer set and product set?
Can we expand in those areas?
Can we re-purpose our products for different markets?
Are we getting the best return on our intellectual property?
Can we license our technology?
Do strategic alliances or cross-marketing agreements make sense?

Capturing this on paper as part of your exit plan will increase the likelihood that a prospective buyer will view your business more favourably than other similar ones. It demonstrates that you have identified a path for growth and it may identify opportunities that the buyer had not considered. Those opportunities can add to the purchase price of your business.

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HAVE BUSINESS WELL PRESENTED

Appearance is very important, so have the business presented in the best possible way. A tidy, well-laid-out work environment, will immediately suggest to a buyer that the business is efficient and well-organised. You only have one chance to make a positive first impression.

KNOW THE SALES PROCESS

Be aware of the business sales process, to ensure that there are no unforeseen issues that occur once a committed buyer is found. A typical sales transaction process will include the following stages:

Complete the pre-sale planning so the business presents its best;
Have a business appraisal done by a reputable business broker;
List the business for sale;
Monitor the feedback from all interested buyers;
Review and negotiate all offers;
Prepare the sale and purchase agreement once a suitable buyer is found;
Have all relevant documentation available during the due diligence period;
Once all conditions are met, apply to have all necessary permits, licences, leases and any other relevant documentation transferred to the new owner;
Implement the handover/training as agreed;
Settlement payment received and sale concludes.

While all business owners will welcome the day the business has transferred to a new owner, many will be unsure of what is next, particularly if the business has been a long-standing part of their everyday routine. Be sure to have a plan for the next phase of your life once the business is sold.

Contact Paul Mcllroy to assist you in selling a business.

Tags: exit strategy selling