Buying or selling a business is stressful. Too often, the outcome can leave both parties dissatisfied; with sellers feeling disappointed that they got less than they wanted, and buyers thinking that they paid too much.
On all sides, it helps to be realistic about expectations and to be objective about the evaluations that are part of the process.
Time change which means that some businesses will be in greater demand than others at any specific time. Those in demand are likely to sell quickly with the owner achieving a good price.
Notwithstanding trends, which play an important role, it does help to focus on perennial attributes that make a business marketable.
Few businesses will have all these characteristics, but the more boxes ticked the greater the appeal to prospective buyers:
- The business is solidly established and has a positive track record. At least three years of detailed and accurate financial records including tax returns that can be easily presented and understood.
- The business is independent of the skills and nature of the owner. In addition, customer relationships are not entrenched with the vendor.
- The business demonstrates growth in revenues and profits over the past three years.
- The business serves a growing market with clear opportunities for future growth.
- The business has ‘mission-critical’ staff members who will clearly stay on after the sale.
- The business premises, plant, equipment, vehicles, fixtures and fittings are in good condition.
- If applicable, the business’s inventory is verified and accurately costed. All stock held is in reasonable and saleable condition.
- The business’ premises are secure for at least three years and the cost of this is aligned with market rates.
- The business’ location fits the operation of the business and is easily accessible to employees and clients.
- The customer base is robust and diverse. There is no over-reliance on a few major customers.
- The business owner is open to providing assistance over a transition period and/or has finance to offer if required.
These are the attributes that a buyer wants to see in the business itself, but what can the business owner do to facilitate a smooth sales transition?
- Determine a realistic, fact-based value of your business. Investigate the selling prices of similar businesses and make sure you can articulate a reasonable return on investment for the purchaser.
- Look after ‘business as usual’. Don’t take your eye off the ball and be distracted by the sale as this can negatively impact on team performance and customer satisfaction during a delicate time.
- Get professional advice and services. There will be many things that you need to know that you can learn from the guidance of those who have been involved in many business sales.
- Make sure your financial records are ship-shape. Don’t underestimate the importance of this. Have to hand at least three years of trading history and the necessary supporting documentation including tax returns.
- Your business can’t just look good on paper. Pay attention too to the appearance of your premises, production facilities, vehicles and equipment. Looking run down can result in your business quickly being devalued at the very start of the sales process.
- Have a positive attitude. This might require effort if you’re under duress to sell but it is still important in order to achieve your aim of getting the best price for your business. Rise above your personal feelings and present your business to the best of your ability. Resist being defensive or offended if prospective sellers make suggestions about improvements and changes.
- Be prepared and anticipate what a buyer or their agent might want to see in the way of documentation. Have on hand the paperwork for leases, contracts, records and details of the intellectual property the business owns.
- Be open to opportunities and expect to negotiate on all aspects of the sale. You might want to sell your business lock, stock and barrel, and then walk away. But this might not be the route to achieving the greatest value. Some buyers might want you to stay with the business for a transition period; others might want you to finance a portion of the goodwill; and some buyers might not want to purchase all the equipment and fittings. Carefully consider every idea and proposition before you accept or reject it.
Potential buyers of a business play need to consider:
- Keep your expectations realistic. All businesses have faults. Do a thorough job of your pre-purchase investigation.
- Engage directly with the business owner, even if the prospective sale is being facilitated by a broker. This enables you to put yourself in the shoes of the founder of the business and gain insights about how you’d go about it if you were running the business. Ask any questions you want to ask and don’t accept inadequate answers.
- Investigate the recent selling prices of similar businesses. Understand how their final valuations were determined. If the purchase involves acquiring fixed property analyse the records of all sales in the area for the past twelve months.
- If you’re not an expert at buying a business, get professional advice.
- Don’t cause unnecessary delays. If you are strongly considering this business, other purchasers are too. Don’t fear making an early offer.
- Be careful of stretching yourself too thin. Let go businesses that are actually too expensive for you. There’s enough at risk in a transition of ownership. If you’re overextended at the start, it is highly likely you’ll run into trouble when unexpected issues arise.
- You may be in a rush to own it all but often it pays to work out if the seller can offer you a transition period. If the goodwill component of the business value is significant, negotiate to see whether the seller will finance part or all of it.
Why a consultant can help both business buyers and sellers:
Bringing on board a professional, especially if you’re buying or selling a business without much experience, can deliver better outcomes because:
- Buyers are exposed to a wider selection of businesses for sale; and sellers are put in touch with a better range of prospects.
- By acting as an experienced middle-person as negotiator, both parties stand to achieve better outcomes without getting personally involved
- Both parties benefit from better marketplace analysis and more accurate evaluation of the real value of the business.
- Experienced consultants help to keep the sensitive transaction confidential without involving employees, competitors, customers and suppliers.
Buyers and sellers may seem oppositional but they actually both want the best outcome. Follow these tips to facilitate a more stress-free, informed transaction process that gives both parties the satisfaction that they have done the right things and achieved what they wanted.