Wednesday, April 25, 2012

Top 7 Tips to Preparing Your Business For Sale




  1. Meet with your business broker to ascertain the current value of your business and get tips on whether you need to make any changes to the to achieve the maximum price possible. Once presented with your appraisal ask as many questions as you need to as it is vital that you understand the process and the justification behind your business appraisal and what the process entails from start to finish. Understanding how your business is valued will help you to make the necessary changes to enable successful sale.
  2. Ensure you have clean, precise and accurate financials. Ideally a good strong healthy operating profit is great to see; the fewer add backs that we have, the better and cleaner the business will look. When preparing your business for sale, ensure that you have your figures prepared by your accountant prior to meeting with your business broker as these will also be the final figures used in the information memorandum which will be presented to potential purchasers once on the market.
  3. Have your systems and procedures well documented. A purchaser wants to have as much security as possible. In most cases they want to be assured that the business can operate without them being there so if all your systems and procedures are clearly and precisely documented it means that they can be easily passed on to either new or existing employees and also help in the training process. This can also reduce the time that you may be required for the handover once the business has settled.
  4. Ensure that the business premises are clean and tidy; get rid of any old stock and sell any redundant plant & equipment so that the purchaser can see exactly what they are getting. Cluttered premises will make the business look untidy and it may also appear to have reached its capacity with no room left for growth and this may not be the case once all in order. Ensure that if applicable, all safety guidelines are also being met.
  5. Talk to your accountant in relation to the tax implications of selling your business. Ensure that you know the market value of your plant and equipment as this will be documented in the information memorandum. It must be a fair market value as to have it too high could be detrimental to the vendor for capital gains issues and too low gives the purchaser less to depreciate so carries less tax benefits for them. Remember that when a business is sold as "A Going Concern" all the plant and equipment used in the business must be included in the sale.
  6. If possible, keep your stock level at a consistent level that keeps the business running smoothly. An overstocked business puts pressure on cash flow and working capital and it is also a negative when you try to sell. It is important to remember that although you as a current owner may not have any cash flow issues, an incoming purchaser may not have the same access to funds as you so will need to keep costs to a reasonable level for the sake of their cash flow.
  7. Ensure that your customer database is as broad as possible. The more reliable you are on one customer, the lower the value of your business as the risk attached is much higher. Document any supply agreements that you may have. We need to instil confidence into a buyer so the quality and accuracy of the documentation is imperative. It must be precise and the more written and less verbal agreements we have the more security the purchaser will have.

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