Selling a business can be one of the most important and financially rewarding events in your working life. Understanding exactly what buyers are looking for in a company allows you to plan and execute the sale efficiently, making it more attractive to potential buyers and maximising its value.
Prior planning is key. Selling a business isn’t a quick process – to achieve the right price and terms often takes a year or more. If you’re looking to sell your business, you should ideally begin to maximize the value of your business at least two, but preferably three or four years prior to the sale.
The benefits of selling before you have to means you can take a deliberate approach to what is probably the most important deal of your life. The increased payoff can be enormous relative to the company’s current value. Read our tips for increasing value within this time frame.
To increase revenue and profitability, Buyers tend to base their purchase offers on the most recent three or four years of earnings. A trend of increasing revenues and profits is the key to obtaining the best price. The reliability of earnings over a long period of time assures the buyer that it should pay a premium price. Increasing profitability in the business is not always easy. The first step is to eliminate unnecessary administrative and operational processes. These processes tend to be non-value-added procedures that your customers will not miss. Read our quick guide on how businesses can save money.
Know your Buyer
Understanding what buyers are looking for in a business also allows you to identify potential buyers. Develop a list of possible buyers and their requirements and begin to model your company so that it will be attractive to these buyers. If possible, develop business relationships with these prospects. This allows you to negotiate over several years, maximizing the overall price and reducing the amount of non-cash terms in the sale.
Most buyers expect to have access to audited financial statements. These should be prepared at least two years prior to the time you want to sell. The audit process provides a more accurate picture of the company’s financial performance and enhances credibility. It is also important for your business to demonstrate that its reporting systems are simple, accurate, and timely.
Consult a Professional
A professional intermediary, such as your accountant, can help ensure that the business has been fairly valued. The valuation process is important. Every business is different and requires an independent analysis. The mechanics of selling your business are best accomplished by a knowledgeable professional who can guide you through the complexities of the selling process. Your accountant can be an invaluable resource and guide. Talk to d&t today to find out how we can help.
Avoid Deal Killers
The most common deal killer is an insistence on a high price that cannot be justified by the expected return on investment. Other issues that buyers tend to shun are contracts that cannot be modified and long-term leases. Be a clean company with no environmental, safety or compliance problems. Good housekeeping, repair and maintenance are essential for making a good and valuable impression.
Be Open to Change
Given the time, most companies can improve their earnings. In some cases, a business in a crowded niche should consider purchasing other businesses or product lines to improve its own strategic value to potential buyers. Owners should be open to change in their own business to enhance value over time.