As business owners navigated the tumultuous last few years, it would be fair to say that more than a few contemplated selling their business. With the ongoing operating uncertainties, many owners have struggled to keep their eyes on the prize and, understandably, motivation and enthusiasm levels have waned. Whether the decision to sell has been brought about by the global pandemic, it’s time to hand the family business down to the next generation, you’re selling to a trusted employee, or finding a buyer on the open market, before you consider how much your business is worth, there are some steps that are essential to maximising its value.
What are your goals?
Firstly, ensure you clearly define your business as well as your personal goals: when do you want to sell your business? What do you want to do with your time after the sale? What financial resources will you need to do those things? Maybe this is just the first step to financial freedom and you plan to continue your involvement in a consultancy capacity? If you own your premises, do you intend to sell these as part of the business or is your preference to retain the property as an ongoing income stream through retirement? The answers to these questions will help you determine the nature and timing of your exit or partial exit.
Setting out your stall
Next you need to ensure your business is presented in the best light possible, maximising its value. You also want to ensure your successor has a well-structured operation to start their career as a business owner. This is particularly important if your exit strategy involves family or you plan to continue as a consultant. But above all, it’s likely your name will continue to be associated with the business whether or not you are involved at an operational level, so personal pride will likely play a part too.
In terms of finding a buyer on the open market, there is a growing group of corporates that are always looking to acquire additional branches to grow their operations. Typically, this type of buyer will look to reduce operational costs by moving the administration function to their corporate office. They are generally looking for a mature business with a well-established customer base and clear structures and procedures.
Your business advisor should have the tools to take you through this process; however, don’t underestimate the time commitment you will need to make. For this reason, the planning process should start well in advance of any planned exit.
Key documentation to review prior to marketing your business for sale
- Organisational structure and role definitions
- Internal policies and procedures
- Up-to-date and complete employment agreements and files for all employees
- Agreements with key customers and suppliers
- Reliable and up-to-date financial records, including management reports and financial statements
Role definitions, policies and procedures should be documented with sufficient detail to allow the business to function without your input, assuming you have professional cover. Similarly, the arrangements you have with customers and suppliers may, to a large extent, be linked to your involvement with the business, so a potential purchaser should be aware that the existing terms and conditions arrangements might not be available to them.
Having the key areas of your business documented will provide a far greater degree of comfort to a purchaser and also potentially increase the value of your business. It can be time consuming and, in the case of arrangements with long-term customers and suppliers, a potentially difficult process.
But the need for up-to-date and accurate financial information shouldn’t be a surprise to any business owner, and the same goes for employee files. Any inaccuracies or omissions could prove a stumbling block if the business sale involves employees being transferred to a new entity. Having detailed employment records also helps the business purchaser understand the value of the current employees and may help them decide whether they are going to retain them.
If you haven’t already thought about the future of your business, there’s no time like the present to get it fit for sale.
David Pearson is an advisory partner with chartered accountants and business advisors BDO Hawke’s Bay. He has a special interest and extensive experience in advising the optometry sector. Contact David at firstname.lastname@example.org or visit www.bdo.nz