Thinking About Selling Your Business?

As a Business Broker I am often asked to assess the value of a business and to give an opinion as to whether or not it is ready for sale. This article gives an insight into the steps to take – and questions to answer - when preparing your business for sale.

Generally owners have been considering an exit from their company over many years and have actually changed their mind at the last minute, when either they are making losses or enjoying excellent profits.

There are many ways to exit a business –

Management buy out (MBO);
Succession planning leading to employees taking over partial management; or
Sale of the enterprise to either a private buyer or public company.

You may decide to sell assets or company shares, whichever way you decide to proceed, detailed preparation is the only way to maximize your return on investment.

Preparing to Sell the Business

I liken the process to the “Porter Model” in his famous book on strategic management. If you run your business like an eagle - they fly high and keep their eyes on the prey - then you can ensure that your money will work for you. In other words, you must work ON your business rather than IN it!

When, and if, you decide to sell your business, you must have been running the company in a transparent manner for at least 2-3 years with clear and accurate financials. Stocks must be sustainable and fixtures & fittings, plant & equipment should all be in good maintainable order.

Information Memorandum

When an Information Memorandum includes such items as a –

marketing plan,
strategic business plan,
competitor analysis,
revenue by major accounts (no names required),
margins by product group and say 10 top customers,
list of senior staff by competency/position and years of service etc

the buyer is left with the strong impression that they are looking at a well-run business with significant upside.

Other Questions to Answer

Supplier Agreements: Detailed information about Supplier agreements and contracts will further ensure confidence. Are there any special terms of trade with suppliers?
EBIT and Brand Name: Multiples of earnings before interest and tax (EBIT) vary considerably from industry to industry, however a “Brand Name” can significantly increase value.
Customer Contract & Income Streams: Long term written contracts are important as are locked in income streams. What are your relationships with customers? Are they long term or one off?
Customer Profile & Growth: What type of customers does your business service? Are they prestige clients with further opportunities to increase sales by the introduction of new products and/or services? Have you ever done a customer satisfaction survey ?
Products or Services: Has your business uniqueness either in its products or services?
Intellectual Property: Are there any patents, trademarks or copyright?
Employees: Are there any long term employees? How valuable are they to the business and are any employees on contract?

All these questions and many more will give confidence to a potential buyer and maximize your return on investment.

If you finally decide to proceed with a sale of your business it would be wise to include as much “vital” information in your Information Memorandum, without divulging customer or product details.

A good law firm and accounting practice are also important ingredients to achieve a successful outcome.

Peter Schiftan, P&S Business Brokers; P: 0418 311 334. Peter Schiftan has an exceptional understanding of general management principles and specialises in the sale of businesses and private equity raising. Peter is also highly skilled in assessing, and preparing your business for the sale process. Peter’s enthusiasm and professionalism has ensured that ethical conduct and sensitivity to clients is synonymous with the way P&S does business. P&S undertake all steps of the process from the initial brief, search, due diligence, negotiation and closure on behalf of our clients. Visit the CEO Online Business Exchange (Did You Know web site section) for a list of current business for sale or click on www.pscg.com.au
First published: 1 July 2004.
Last updated: 1 September 2006.