Your business should always be ready to sell. Preparation is the key to a great outcome.
A business buyer can come knocking on your door at any time and you need to know a fair market price for your business so you can properly consider an offer. It’s equally important to understand the factors behind this fair market price to enable you to take measures to improve your enterprise value.
Ideally most small to medium sized businesses should begin to prepare their business for sale one to two years prior to putting the business on the market and this period may be longer for large enterprises. In this way you can prepare and make your investment and financial decisions with the upcoming sale in mind.
However, the reality for small business owners is a much shorter preparation time. If the business owner has not yet started to prepare, then as long as you have realistic sales price expectations and can assemble a strong business sales team (typically an accountant, business broker and lawyer) there is still a good chance of a successful exit.
Owners can significantly impact the price achieved upon sale by careful planning. A rushed or anxious seller will nearly always get less for their business.
Selling your business should form part of your business strategy. Your strategy may dictate that the time may be right to sell when you have achieved your business goals, such as:
- Achieving a certain age to continue to manage the business. E.g., retirement.
- Achieving a certain Business Enterprise Value and introducing investors and partners.
- Other business, commercial or personal interests become a priority. E.g., career change, other business opportunities or relocation.
Whilst a successfully planned exit strategy is often achieved, many businesses are also presented to market unplanned, such as:
- Partnership dispute
- Owner is ‘burnt-out’
- Low profitability.
Understanding the best time to sell and a well-planned exit strategy will always yield much better results.
Establish Your Reasons For Selling
Among the first questions asked by a purchaser is, “why are they selling?”
There are many reasons for wanting to place your business on the market. The potential buyer will find your reasons for selling very compelling and will want to know that they are legitimate.
In fact, many buyers will also be trying to assess your urgency for selling. They will try to use this information in negotiations, looking to take advantage of any desire to exit quickly.
Some of these reasons may include.
Starting and growing a business takes hard work and dedication. Sometimes just as the business is becoming successful and the profits rolling in, the owners become a little worn out. Rather than letting things deteriorate, it may be time to sell the business.
Keep in mind that it is easier to sell a business with rising revenue and profits – if you can feel your energy as an owner slipping it may be better to act sooner rather than later. A good test is to take a short holiday and gauge your enthusiasm for the business on your return. If you aren’t returning with new energy and ideas burn-out is a real possibility. If you can’t take a holiday in the first-place burn-out is almost inevitable.
Some business owners find themselves wanting to sell because they are unable to understand or fully take advantage of a new technology. Perhaps a new owner, with these new world skills could take the business to the next level e.g. implement e-commerce.
You may have gone through a divorce or have a dispute with a business partner which has made it difficult to continue with the business. Partnership disputes may not be hostile, it could be as simple as an inability to agree on the strategic direction of the business. Sometimes the best resolution for this is to sell the existing business and for both partners to restart/buy a more suitable business.
LACK OF INVESTMENT CAPITAL
There are times in a business’s lifecycle when it needs investment capital to take advantage of new opportunities. Some owners are not able to invest further in the business and give it what it needs to prosper.
Many business owners hold off selling a business for retirement just a few years too long. Keep in mind it can take longer than 6 months to sell a business and remember that it is harder to sell a business with declining revenue. If you feel yourself starting to “take your foot of the pedal” it may be worth bringing forward taking your business to market to realise it’s full value.
CIRCUMSTANCES HAVE CHANGED
Sometimes circumstances such as birth of a child, illness, death, the need for family support, make running a business more difficult or just not possible. This is hard to plan for, however an empathetic business broker should be able to assist prepare the business for a timely sale.
A poor preforming business can be a drain on its owners. If you’re looking to exit because the business is not meeting your expectations, then you need to appreciate any new buyer will need to have confidence that they can turn it around.
WHEN YOU HAVE ACHIEVED YOUR BUSINESS GOALS UNDER YOUR MANAGEMENT
Sometimes you just know the time is right for you to exit based on goals you established earlier in your business journey.
THE GOOD NEWS
Throughout the process of preparing your business for sale there is considerable support available to you. A dedicated business broker will help you understand the fair market price for your business and advise you how to maximise this value. They can work with your accountant, business partners and your key staff to ensure all stakeholders clearly understand why the business is selling.
To make use of this resource the best place to start is with a complimentary, customised business appraisal – contact the MMJ team to find out how an appraisal could work for you.