Perhaps the time has come and you are leaning towards selling your business, for one reason or another. However, before you take the plunge and officially put your company up for sale, it is important to think about exactly what potential buyers look for from a business.
This is a vital consideration. Understanding what prospective buyers are looking for can greatly assist in the task of preparing your business for a sale, and all importantly, setting a sales price that you feel you deserves.
Securing the services of an experienced business broker is also an oft recommended step in the process of preparing your business for a sale. Indeed, a broker of repute will have the contacts in place to quickly set you up with some interested parties, and by that we are talking about serious buyers who would offer a fair price.
What is a fair price? Again, a broker can be an invaluable assistance in establishing this very conundrum.
But let’s rewind for a moment. Before you take the step of advertising your business at an established price, with or without the assistance of a broker, you must consider whether your business can be viewed as a saleable asset, and by this we do not simply mean because you think it is.
Therefore, here are a few of the major points when considering if your business would make an attractive sales proposition to prospective parties.
What is your company actually making, and how regularly does it make this? And are these earnings simply the result of one lucrative, repeat customer, or do you have a number of relationships that can guarantee the future health of the business should one major player cease trading with you? What are projections for the future, and what are the potential threats to those future earnings? All of this information is not only relevant, it is crucial when establishing the true value of your business, and you can be sure that any serious buyer will perform a deep analysis of these considerations with the assistance of experienced accountants as part of the due diligence process.
Knowing that your company is profitable is not nearly enough – do you have the historical records and statements to prove it? A black hole in records is a major red flag to prospective buyers and may ultimately result in your business being labelled ‘unsellable’. This is an extreme result, but at the very least missing documentation and holes in accounts will push the value of your business down, so long before you put your business on the market, start gathering all pertinent financial information so it is ready to hand when the time comes. Again, a broker can assist in establishing exactly what documents and records will be sought during the due diligence process.
The business’s dependency on you
You may pride yourself in being the focal point around which everything in the entire company revolves, but in reality, this is the last thing a prospective buyer wants to see. A buyer wants a business that can operate just as well without you, even if it is your intention to stay on in your role or work in a consultant capacity (the new owner may not in fact want this, so of course this point must be established early in the sales process). Failing to extricate yourself from the centre of your company is a major failing in any exit strategy: in fact, it may reveal that you are not ready to sell at all.
Connected to this is the strength and competency of the management team you have in place, along with the qualities of your employees. If there is a strong element of independence within management structures, and an open culture in which teams can interact without the constant presence of a conduit, then these are all signs that your business will continue to operate well without you. This may be a difficult point to accept, but this is no time for ego, and if it appears that you need time to ensure these systems are in place, then that time must be taken to achieve it.
What happens next?
Once your business is decreed to be a saleable asset, the appeal (and subsequent price) can be seen to be dependent on the following criteria:
How much money does your business actually make?
This is not the sole factor, but you are kidding yourself if you do not see this point as important. You can dress the numbers up any way you want, but any serious buyer will want hard numbers detailing the health of your business, factoring in all expenses, even those you may deem ‘one-off’ or ‘unnecessary.’ Once again, all information is valuable to a prospective buyer, and a broker can assist in establishing exactly what information will be requested.
How sustainable are your company’s earnings?
A serious buyer will not only want access to historical numbers, but also detailed projections too. If there are threats to future earnings, savvy buyers (and we can safely assume that most buyers fall into this category) will know about them, or seek to clarify what they are with (or without) your assistance. But fear not. If your projections show your business flatlining in profits, this if often the type of opportunity that is being sought. In reality, most, if not all businesses that are put up for sale face challenges. It may simply be that you have taken your business as far as it can go with your particular expertise or capital, and a buyer may well possess these missing credentials. That makes your business a lot more valuable to them that it perhaps is to you, and the price can be reflected accordingly.
Yet again this shows the value to being able to approach the right buyers, something a broker can greatly assist in. Established brokers have access to many contacts, and establishing the right buyer who can take your business forward will not only improve the possibility of selling your business, but will increase the price too.
How much information can your company make available, and what is the quality of this information?
As previously mentioned, employing a business broker can be a valuable tool as they will be able to assist in detailing exactly what a potential buyer will want to see from you as the existing owner in the form of records, numbers and documents. Failure to produce or have to hand exactly what is being sought can be seriously detrimental to the process, and will cause delays at best. That is why preparation is key. In fact, preparation for the due diligence process should begin a significant time before the actual sales process gets underway, so speaking to a broker early is recommended.