Selling Your Business Requires Preparation
A large number of “baby boomers” are getting ready to sell their businesses. If you are in this category, or you would like to sell your business in any case, taking your time to do some planning should enable you to attract a higher price for the business than what you would get if the decision to sell is not planned or is rushed.
The first thing “baby boomers” need to consider is whether they are hopeful of passing their business on to their children (or one of their children).
Succession planning needs to be planned and some basic questions answered including:
- Do your children want to take over the business?
- Are they happy to do so?
- Will you get enough money out of the deal to retire with dignity?
If you do decide to have a family succession, it is desirable to implement a training program so the next generation understands how the business is run.
The problem with trying to sell a business at present is that, with the “baby boomers” approaching retirement age (or what is generally accepted as being retirement age); there will be a significant rise in the number of businesses on the market. If you are going to maximize the sale value of your business, businesses need to be prepared. You need to get the business in the best possible state to enhance the sales value. Normally this process will take 1-2 years and in this time you should ensure that appropriate robust systems and controls are in place (if not already).
A business plan should be prepared outlining how you envisage the business would operate for the next 3 years, system manuals should be updated, the business should appear to be stable and confident in its future operations and be able to accommodate a new operator.
You may need to hire a mentor/consultant to assist you in the sale of the business/succession planning (especially if you are undertaking family succession). The expert could look at key activities and identify any gaps that may exist so that work can be undertaken to improve the business’ performance in these areas.
Items to be checked include:
- systems control;
- best practice implementation relative to key performance indicators;
- business operational issues;
- human resources systems;
- financial account preparation and interpretation;
- debtors’ aged analysis;
- inventory level; and
- physical fitness of buildings, plant, motor vehicles etc.
The key thing is to identify where any gaps exist and use the 1-2 years to fix the problems so that the business can exhibit adherence to best practice. Unfortunately, if you do not have these items fixed, in most cases you will be offered a much lower sale price than what you expect to receive. In some instances this is driven purely by the large number of businesses that are already on the market and ones that are expected to be placed on the market over the next decade. The key thing is to understand where the gaps are between the present state of the business and best practice, and then fix these gaps so that the business will stand out from others being offered for sale. Our key advice is to dress the business up now so as to maximize the price.
If you would like assistance on a due diligence review of the readiness of your business for sale, please do not hesitate to contact us.