1. Know your numbers
- Add-Back Schedule
- An add-back schedule are discretionary expenses that are part of the business, that are put back into the figures to increase the net profit figures.
- They contribute to valuation of the business, to offset any ‘legitimate deductions’ that your accountant prepared to essentially reduce the tax paid against your Profit and Loss.
- An add-back schedule will show a potential buyer an EBITDA (Earnings before interest, tax, depreciation and amortisation) value, which in turn allows them to determine a ROI (return on investment) and potential earnings moving forward (using the same business structure).
2. When is the right time?
- At least 12 months of strong figures
- Cash back in the business figures
- Timing around business contracts, leases etc
- Don’t wait for the busy season as a buyer will see that as a great time to get in
- As soon as you lose motivation – it is time!
3. Systems
- Staff
-
- Contracts are in place
- Key people secured
- Key people know what is happening and are supportive
- Maybe even offer key staff and incentive to stay
- Processes
-
- What can be systemised in the business?
- Can the sales process be automated?
- Lease
-
- How long to go on the lease?
- Can you secure a longer lease or option?
- Can you negotiate a cheaper price?
- Forward Contracts
-
- Can you identify clearly your pipeline of work?
- What can you as contracts?
- Can a potential buyer identify future opportunities?
4. Business as usual
- Even when you put your business on the market, you have to continue business as usual.
- Business sales can take 3 – 12 months to sell, and if your business figures go backwards during this period, then the value of your business is going backwards.
- It is important to a potential buyer to see the same level of activity in a business.
- A tired and negative owner can turn potential buyers away.
5. Don’t try to sell it yourself
- I see a lot of business owners try to sell their business themselves first.
- They usually promote the business on gumtree and other free sites.
- This makes the business look cheap.
- It also potentially has the ‘best’ buyers look at your business when you are not prepared to sell.
- It also makes you tired as a business owner as you are fielding all of the enquiries while trying to run your business, and hearing everything negative about your business.
6. Set the right price
- So many business owners set the price by:
- “This is how much I have invested (time and money), so it must be worth $...”
- OR
- “The café down the road sold for $..., and mine is much better than that, so it must be $...”
- OR
- “I have all of this work or orders coming in, so I will add that to the price”
- The business is worth what your traditional figures have shown us, plus the opportunities a potential buyer has to capitalise on them.
- Give your buyer the best opportunity to hit the ground running and make money immediately and they will pay you the best price for the opportunity.
7. Business finances in order
- Do you have any loans that can be capitalised?
- Do you have any outstanding debts, that we can refinance?
- If we can tidy these up, we can take a lot of stress and pressure out of the sales process.
- Are you debtors / creditors under control?
- This shows that you know where your cashflow is and you have good clients and suppliers that you work with very well.
8. Marketing your business
- Professionally prepared documents – Information Memorandum / Due Diligence Package. Promote your business to the professionals that will look at your documents.
- Ensure you are spreading a wide net with your marketing websites – not just realestate.com.au or domain.com.au.
- Social media – are you telling the right people.
- Industry specific – talk to your broker about the ‘type of people’ that would buy your business. Target marketing to YOUR buyers.
- You cant sell a secret – as much as you really would like to keep your business sale a secret, it is not ideal (although sometimes you have to). Keep in mind that the people that love your business the most are your customers and staff, and one of them may be your buyer.
9. Make sure YOU can be replaced
- The sale of your business is not about your ego as the business owner.
- You are trying to make the business seem easy to run, the new owners can just step in and it will be a smooth handover.
- The more systems, and the more replaceable you are, the better the business looks to a potential buyer.
- Remember, if you seem like you are working 80 hours a week, the team cant do anything without you and everyone else is hopeless, then a buyer wont want to buy your business, they might just offer you a job.
10. Be open to options
- In the current climate, options are a very big part of a business sale.
- While, each option has its own benefits and pitfalls, it is worth knowing that there are alternatives for a buyer and seller to negotiate.
- We would all like a person to walk up and pay full price on settlement day, but those deals are becoming less common.
- So don’t cross out the alternatives for the right buyer.
- They may include:
- Earn Outs (you earn a % or figure based on future performance)
- Vendor finance options
- Employing the owner for a period of time
- Milestones – depending on ‘xx contract coming in’ or Sales
- Turnover of $xx in the next 12 months’.
- Shareholder transfer – 25% on day 1, 25% in 3 months
11. Choose the right Broker
- Selling your business is a long term and trusting relationship.
- Ensure you select a broker that knows your business, but most of all you get on well with and you feel can do the best job possible.
- In tough times, the best brokers stand up and stand out.
- It is not just about price. It has to be about TRUST.
- Remember, this is one of your biggest assets and a good result in regards to your exit from the business, can set up your future.