Maximise the sale of your business
The sale of your business is often the realisation of many years of hard work, focus and dedication. Only one opportunity arises to produce a good commercial outcome, so it is critical to consider the options and plan your exit strategies well before you want to sell.
We have outlined some of the key aspects you need to consider to maximise the sale price of your business.
Planning the sale of a business or company should commence years before the actual sale so that the exit is well planned and the business is highly attractive to potential buyers.
Engage your financial and legal advisors as well as an advisor experienced in preparing businesses for sale or exit to ensure a holistic approach to the process.
It is important to understand the market and the valuation metrics that apply to the industry you operate in. You can’t just decide on the price you want and expect to get that result.
Any astute purchaser will be looking at pricing within your industry to determine whether your asking price represents good or, at least, fair value for the business. A business valuation will determine whether the sale price is likely to meet your expectations and also allow you to deal with any expectation gap that might exist.
Vendors are often poorly prepared. Consider it from a buyer’s perspective and assess if it has the following attributes:
- good quality customer base generating recurring income;
- contractual agreements with key customers and suppliers;
- well-structured, responsive management team;
- tight financial management and good internal controls;
- regular high quality financial reporting;
- up to date financial statements;
- operating and procedures manuals, even if they are only high level; and
- well-maintained plant and equipment.
It is important to get your house in order before marketing the business for sale. Treat the business as a separate “standalone” entity which is only incurring expenses necessary to operate efficiently.
When preparing for sale, ensure your advisors compile “Due Diligence” files of the items they expect the purchaser to request. This normally includes building and equipment leases, reporting structures, internal control procedures, employment agreements, customer and supplier agreements, past and current financial reports, budgets and forecasts, asset registers, depreciation schedules, receivables and payables analyses, licenses, permits and patents, occupational health and safety policies and details of any litigation.
Usually, owners and directors have built up strong personal relationships with customers and suppliers. Careful consideration should be given to how these relationships will be maintained throughout and after the sale process.
A well thought out transition plan will help to preserve these relationships and can also lead to some long-standing employees becoming involved in the business acquisition.
Keeping the sale focused
In reviewing your business you should carefully evaluate the key drivers that make it valuable and focus buyer attention on these aspects.
If you can demonstrate that your business has a strong recurring revenue stream with long term customers and suppliers it will likely be seen as a very attractive purchase.
Identifying future opportunities, for the purchaser, including new products, markets and territories you have yet to open up and new relationships through which they can market can also help focus the attention of the purchaser on the opportunity.
If a purchaser has difficulty obtaining bank finance to fund the full purchase price of your business, consider if you are willing to vendor finance some of the purchase.
If so, know how to secure your position so you don’t lose out if the purchaser fails to operate the business successfully. Avoid vendor financing the entire purchase as this can leave the purchaser feeling that there is nothing to lose. Purchasers should have “skin in the game” in any vendor financing agreement.
A buyer will generally seek to restrain the vendor from operating a competing business. The vendor should have a clear understanding of the extent they are willing to be restrained following the sale.
Documenting the sale
Use your advisors to carefully document the sale agreement so the sale is structured to best suit your circumstances and desired outcome.
If you have planned well and prepared your business properly, the sales process should be successful. If you need advice about how best to plan for a business exit get in touch with our Corporate Finance team in Sydney on (02) 8346 6000 or Newcastle on (02) 4962 2688, or click here to find your nearest specialist.