To get the best possible price for the sale of your business, there are couple of things you need to put properly into place. You need to check on your systems, procedures, technology, personnel, profitability – all contribute to what you’re going to get when you sell your business.
One key factor is knowing when the right time to sell is. Selling a business is not as easy as selling second hand goods – it requires preparation in order to achieve the best price possible. If there are impulse buyers – there are impulse sellers too – don’t fall for that trap. Be planned, and methodical to achieve a good sale price in the shortest possible timeframe.
When is the right time to sell?
Sell the business when it’s on an uptrend rather than when it’s on a decline. Yes, it’s tempting to discard something that is not bringing much money immediately and put the proceeds to something else, but that is not a wise business decision. You are not going to receive maximum sale price on a classic car if it’s not in running condition – you’re going to hear buyers haggle citing cost of repair or restoration. Same is true with selling your business.
We suggest being ready at least two years ahead of actual sale. Why? So that your business can be “sale ready.” As mentioned, the business should be sold when it is most profitable or at its peak.
Why do you want to sell?
Most business owners we come across who want to sell are thinking of it because the business simply didn’t meet their profit goals. Some others do as preparation for retirement.
Two years to sell the business?
During the two year period, we can analyse where your business can improve. Are there processes or systems that needs to be put into place? Are the margins enough to attract the right price for the business?
Your business relationships should also be evaluated. How is your current standing with both suppliers and customers? If you have a good reputation with all stakeholders, this eases the burden to future owners who won’t need to worry too much or do damage control.
You can download PJT’s ‘Planning for Sale’ guide here – it contains a step by step suggestions in preparing the information you will need to show prospective purchasers and is a good way of double-checking that your business is ready for sale.
Level of Principle Reliance
Businesses which rely on the principle or one to two key staff members are often harder to sell.
Creating and communicating the transition process within the two year period is a good time to minimise buyer worries.
Perhaps, you have an internal successor - a family member or a trusted staff member who will purchase the business? This makes it easier as main points of contact are retained and transition will be much smoother.
How would you know if your business is “sale ready”?
We have created a checklist for businesses to evaluate if they are “sale ready”. How does yours compare?
- Business Documentation is in order
- Processes clearly documented
- Systems are capable of providing quality information
- Technology and software current and in good working order
- Staff employment agreements are current
- WIP & debtor recovery is strong
- Financial performance is strong and has an improving trend
- Budget to actual performance is documented and actively managed
- Arrangements with business partners, service providers etc. are documented and up to date
- Your business plan and is well documented and being implemented
In addition to the above being documented, the following key value drivers will help you optimise the sale price when the time comes:
- Loyal Customers
- Innovative and different
- Benchmarking performance
- Good systems
- Loyal & committed staff
- Growth and succession planning
If you’ve got most of them, that’s good. If not and you’re thinking about selling your business, we can help you with the remainder. Request a meeting with a PJT Business Advisor to discuss the plans for your business.