Navigating your way through a successful business sale is far from simple. From our experience selling businesses across Australia for 25 years, there are a range of vital factors business owners must consider prior to entering the sale process if they wish to achieve the best possible sales outcome.
TIP 1: Don't treat your business sale like a residential property for sale
A common mistake made by small and medium business owners is that they allow their business to be marketed in the same way that residential property is sold. That is, they allow agents or brokers to accept the listing and then assume that advertising on the internet will be sufficient to attract a buyer.
While residential property is often purchased for lifestyle and emotional reasons, businesses are generally purchased based on strategic fit and return to the investor. As such, the successful sale of any business requires significant preparation and analysis prior to divestment - especially those businesses valued between $2 million and $50 million.
TIP 2: Be prepared to make changes when required
If you're a small business owner who has run a commercially successful business for many years you may find it difficult to accept the idea that you must modify your business systems prior to commencing the sale process. However this is sometimes vital to ensuring the best result. At Scancorp we're often approached by owners who are keen to sell immediately but whose business is not yet in best shape to commence marketing. In such cases we work with the business owner to establish a strategy for making the changes required to optimise the value of their business.
TIP 3: Prepare business plans and financial records
Ensuring business plans and financial records are accurate and up-to-date is crucial to achieving strong business sale values. The Information Memorandum prepared for the business is the key marketing document and this requires significant analysis to enable buyers, accountants and financiers to adequately scrutinize the business.
The financial returns generated by the business are normally expressed as EBIT, EBITDA, PEBIT or PEBITDA (refer Scancorp FAQs for explanation on these terms). These must be "normalized" to ensure all non-business expenses and revenue items are removed from the business financials.
TIP 4: Systemise the business and implement succession planning strategies
Buyers are often reluctant to take on a business that relies on the knowledge of just one individual. It is therefore vital that business owners document all key processes to facilitate the transition of the business to the new owner.
We also recommend succession planning strategies be put in place prior to entering the sale process. This helps to ensure key intellectual property is not held by just one individual, which in turn will increase the overall value of the business.
TIP 5: Consider a range of divestment strategies
We believe that businesses with value in the $2 million to $50 million offer unique challenges and opportunities for divestment. These companies are usually a great deal more complex than the very small businesses, yet don't have the governance and transparency offered by listed companies.
As such they require a greater investment of time and analysis in order to properly market them. When seeking to divest all or part of the equity in companies of this size, we recommend owners consider variety of strategies such as earn-outs; syndicated sales and private equity leveraged buy-out structures - as well as more traditional buyouts be corporations or high net worth individuals.
Ultimately, if you treat your business as a significant investment opportunity, dedicate the effort required to present it properly and explore innovative approaches to divestment - you are likely to come out ahead of your competition.
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