I AM IN BUSINESS BUT LOOKING TO SELL
4. How do I sell my business for the best price?
This Action Plan is designed to help you develop a strategy for increasing the value of your business. The objective of the Action Plan is to make your business as appealing as possible to prospective buyers, so you maximise return on your investment.
As we said earlier, it doesn’t matter if you’ve been running your business for decades, or if you founded it a few months ago with the express intention of selling it on. Whatever your situation, this Action Plan will help you get your business in shape for selling at its optimal price.
Preparing your business for sale means drilling down into the strategic details of your original business plan, as well as how you run your business day to day. In most cases, you’ll need to make some significant changes in order to prime your business for sale.
How to use this Action Plan
This Action Plan will help you compile a range of actions and solutions, which you can tailor to your situation. When you’re moving through each section of the Action Plan, consider how a prospective buyer would view your business from the outside in.
Ultimately, a business is worth what the highest bidder thinks it’s worth.
You deserve to gain the best return for your hard work. So, read through each part of the Action Plan, then write down your response to the Action section at the end of each step. All of the information you collect will become a valuable guide for selling your business.
- Is my business stable?The longer your business has been operating, the easier it could be to sell, provided it has a solid track record.Action: Make sure you have a well-documented performance and growth record over the years, including financial returns, projects completed, or customers gained. Buyers may find tax return records more convincing than other financial documents.
- How reliable is the market?A good history is reassuring, but buyers will be strongly interested in the future. They will want to know that your main market(s) are growing or at least stable rather than declining.Action: Look for research that shows your market is in an emerging or growth phase rather than declining. If growth has flattened, can you suggest areas of the market with still untapped opportunities?
- Do I have a stable customer-base?A well-managed customer database is one of the most valuable assets you can offer a buyer because it can be used in many ways for marketing and gaining more customers through referrals. Buyers will also want to know that key customers will not leave when you do.Action: Improve and update your customer database. Start measuring customer retention rates and customer referral rates so you can talk about customer lifetime value and show how the good service the business provides both retains customers and brings in new customers through customer referrals.
- Are my cash flows secure?Buyers will want evidence of reliable revenue streams coming into the business. A business with a good spread of customers is usually more attractive than a business dependent on just one or two major clients because it will be more resilient if a major customer decides to leave.Action: Start building more diversity into your customer base if you are too reliant on a few major customers. Look for ways to develop more revenue streams by adding extra services or products and lock in stable revenues through customer loyalty schemes and contracts.
- Do I have established marketing tactics?Marketing is an area where buyers may fancy they can add value through new ideas, but they will also want to know what tactics you have used.Action: Document your marketing strategy (it should be in your business plan) and be able to show your promotion plan tactics for the next 12 months. Point out what you have done to expand your markets and what has worked best for the business. Suggest some still unexplored areas that could offer potential, such as a better website or social media marketing.
- Do I have financial control of my business?A business with a history of lurching from cash crisis to crisis will hardly inspire confidence. You can be sure that a buyer will check out your credit history and the loans the business has needed from time to time. The buyer will also want to know what key performance indicators (KPIs) you regularly monitor. These features will reveal your money management skills both in good times and bad.Action: Be able to show a buyer through key documents such as cash flow forecasts, profit forecasts and budget reports that the business has been well managed. Start monitoring the standard key performance indicators (KPIs) such as gross profit and net profit ratios as well as KPIs critical to your type of business. Show in particular that you have credit management under control and the average debt collection time is at least as good as the industry average (ask your accountant for the statistics) and steadily improving.
- Is the intellectual property in my business protected?
The intellectual property (IP) the business owns such as a respected brand can be very valuable to a buyer, but only if it is well protected.Action: Protecting your logo and brand as a trademark is essential. See what else you could do to protect any designs, inventions, copyright material or other IP that will add value.
- Is my business dependent on me?A business wholly or largely dependent on your presence and personality will have limited appeal because buyers will naturally wonder what will happen when you walk out the door.Action: If your business is personality-based, take steps to reduce its dependence on your continued presence. The steps could include employing staff and delegating more of the critical tasks to others.
- How loyal are my staff?If key staff are critical to the continued success of the business, buyers will be anxious about their loyalty to the business under a new regime.Action: Be able to show that key staff have been briefed on the likelihood of new ownership and are locked in through loyalty incentives.
- Will the transfer of ownership be easy?Being able to reassure buyers the transition to their ownership will be as painless as possible may just be what is needed to clinch the deal.Action: Think about what you can do to help the buyer. Consider the following ways to make the transition easier for the incoming owner.
- Offer some training before the handover, plus a hand-holding period afterwards.
- Offer some financing terms. The reality is that few businesses are sold for clean cash. An offer to leave some money in the business can be reassuring to a buyer.
- Restructure the business to make it more affordable. If you own the building, can you separate it from the operating part? If the business has expensive machinery, can you separate it into a separate company and lease the machinery back to the business?
- Work through this guide again to select and action the most important items that will add the most value to your business.
- Discuss possible ways to protect your IP with an IP expert.
- Get advice from an accountant to identify the KPIs critical to your industry type so you can show they are monitored and acted on.
- Ask your accountant and a business broker what other steps might add value to the business, or make it easier to sell.
- Discuss any tax angles and other issues that might result from restructuring your business into separate parts to make it more affordable or attractive to a buyer.