If you’re considering selling your business, it’s important to start preparing early. There are many actions you can take to help your business attract the right buyer once it’s on the market. But there are also things you shouldn’t do if you’re planning to sell your business. LINK Chief Executive Officer, Bruce Cattell, identifies some common seller pitfalls.
In putting your business on the market for sale, you are opening up the structure and performance of your company for buyers to view. Delivering clear and uncluttered view of your business is crucial in order to grab buyer attention and maximise your return come sale time.
LINK Chief Executive Officer, Bruce Cattell, says that any seller needs to have a clear plan in place to realise the true value of their business on the market.
“There’s no such thing as preparing for the sale too early. If you are considering selling your business, there are many actions to take – and pitfalls to avoid – that will help you attract the right buyer,” he says.
IT’S ALL ABOUT TIMING
While the luxury of time can be fleeting, timing it right and bringing the business to market when it can be shown to be running at peak efficiency, and with a solid record of profits trending upwards, is always going to result in more buyer interest.
Have you trimmed costs, increased sales, and margins, restructured and/or reviewed other variables to get you there? Minimising costs and increasing annual profit by a modest amount can add to the potential sale price. A good business broker can help you recast your profit and loss (P&L) to expose to the buyer the true discretionary earnings of the business.
“It is possible to wait too long to put a business on the market,” cautions Bruce. “A common mistake that sellers make is waiting until the market is deemed ‘ideal’ to sell, or the business has made better profits in the previous financial year over the one before.
“But the window of opportunity can be small, and the vendor being in a position where they feel they have to sell because the business is visibly in decline, is not a positive one and could be reflected in less buyer interest.”
Bruce says the easiest way to avoid waiting too long to sell is to know your exit plan early on, gaining an understanding of the drivers of business value and targeting the level of profits you would deem attractive to garner a successful sale at the value you want to achieve. You also need to realistically consider how many years you want to be in the business.
LOOK AT THE BOOKS
A buyer will want to perform due diligence on everything, and that includes the company’s books.
“A seller is going to have to be prepared for a potential buyer to look at every aspect of the operation’s running costs,” says Bruce. “No one wins if the accounting picture isn’t clear, and we recommend working with your accountant to make sure you’ve accounted for all income and expenses cleanly.
“The buyer is likely to ask for tax returns, financial statements, lease agreements, lists of equipment being sold with the business, staff contracts, a current operating manual, and even year-to-date results. Ensuring your books are up to date – with supporting facts and figures – gives a buyer a clear picture of your business.”
THE INDISPENSIBLE OWNER?
Another mistake many business owners make is being seen to be indispensable to every part of the operation. A business is more attractive if its success isn’t solely dependent on the owner’s operational knowhow, technical skill or personal relationships with clients or suppliers.
“This is tricky of course, because so much of a successful sale is tied up in the reputation of the business – with staff, customers, competitors – when it goes to market,” says Bruce. “A lot of that perceived goodwill could be damaged if buyers link it to an over involved and irreplaceable owner. Instead, having a solid management structure in place, where it is clear there are competent staff tasked with spreading the workload and helping drive the business forward is crucial to giving buyers confidence that the business will continue to perform once the current owner leaves.
“After all, if a potential buyer sees the business owner as doing everything themselves, they might question if this is because there isn’t enough profit to hire other staff and start wondering if they’re buying themselves a job rather than a business.”
DON’T LOSE FOCUS
Selling a business is a marathon, not a sprint. Studies have shown that the average time to sell a business is 4 to 8 months. This is true even if all the factors – a growth industry, strong market, and a profitable business – are in the seller’s favour.
Bruce says that losing focus on the sale process could push the finish line even further out. Engaging a successful business broker to assist with the sale helps spread the load and ensures the seller has trusted advice on the sale process, while continuing to run the business as it has been up until that point.
“Sellers should never underestimate how focused they need to be on the sale process. That’s on top of the general day-to-day running of the company too. The stress of a vendor trying to manage all aspects of the sale often distracts them from everyday operations, potentially causing a downturn and having a knock-on effect in a reduced sale price.
“Remember, you still need to earn a living and pay your staff while you’re going through the sales process.”
YOU CAN’T SELL A SECRET BUT YOU MUST MAINTAIN CONFIDENTIALITY
Marketing is one of the most essential aspects of a business’ sales strategy. But it’s also one where a lot of business owners struggle, especially if they’re attempting to conduct the sale themselves. The opportunity needs to be brought to the attention of motivated, well-funded buyers. But handled in a way that ensures the sales process is kept confidential from suppliers, staff customers and competitors until the deal is agreed.
“Marketing is one area where it’s important to spend wisely to balance publicity with the need for confidentiality, knowing that eventually you’ll get a great return on this investment,” says Bruce. “Engaging a professional business broker to assist with marketing the business will free up your time to focus on running your business, protect your privacy and maximise the sale value achieved.”
LINK offers a successful, distinctive, tailored service to clients. LINK business brokers work within their own specialised divisions, from franchise and rural business to tourism, manufacturing, larger corporate entities and beyond. All LINK brokers have experience in these industries, offering unique insider knowledge into your desired sector, ensuring a broader view of the market and faster outcomes for clients.
To find out more about selling your business or to speak with a LINK broker, visit go.linkbusiness.co.nz/sellmybusiness
