If you’re reading this, it’s more than likely that you’ve got a business and you’re interested in cashing in by selling it.
Chances are that you’ve built your business over a number of years and if you are going to part ways with it, you want to make sure that you do it properly. So the questions you ask yourself include:
There are several methods to value a business and the method you choose can depend on the industry, age of the business or even whether or not the business is profitable. Business valuations require a list of assumptions and estimations that can never be 100% relied upon. However, a valuation is useful for a few reasons:
For those looking to sell, you’ll ask if it’s the right time to sell. Is the market in a downturn? Will I be able to get a better price around end of financial year?
There’s no “ideal day” to sell in a calendar year. Sorry.
As accountants, the problem that we see over and over again is that business owners aren’t prepared to sell. Often something happens that suddenly makes the owners want to sell up shop. It could be health reasons, the decision to retire or an unexpected need for cash.
The problem with this approach is that it puts the seller at a disadvantage. If you’re not ready to sell, you don’t really know what it’s worth. If the business isn’t prepared for sale then potential buyers will be able to poke holes in the business operations. Competitors can take advantage of this situation to gather valuable information about your business and you may lose customers and staff when they hear that you’re looking to exit. Facing a string of tyre kickers and increased internal problems, business owners often take offers out of desperation, leaving huge amounts of money on the table.
To add insult to this, if you sell your business without considering and preparing for the tax consequences, you could lose a large part of your sale proceeds to the tax office.
So how do you sell your business the smart way?
The simple answer is to start preparing now. Consider what you actually want to do with the business. What’s your exit strategy? Value your business now and assess what needs to be done to improve it.
What we find is that when businesses go through a structured improvement process, they begin to run much more efficiently. The owners get more time to grow the business and over the period of months or years it begins to run itself. Even more interesting is that when your business runs that well, buyers will often make unsolicited offers to you. Rather than haggling over prices with people, you can sit and wait for the right offer.
Better than “Is this a good time to sell my business?”, you can ask yourself, “Should I holiday in Tahiti or the Swiss Alps when it’s sold?”