Selling a Business
Are you nearing retirement and thinking about selling your business? Or maybe you are just ready to try something new?
Whatever your motivation is, the process of selling a business should be incorporated into a clear succession strategy. Even if you think you still have 10 years left in the business, it is important to have a succession plan in place now in case your circumstances change.
In this blog we discuss 5 key tips to ensure your business is ready for sale when the time comes.
1. The “hit by a bus” test
What would happen to your business if you were hit by a bus and out of action for 6 months? Could the business continue to operate without you?
In many small businesses the owner is the lifeblood of the business. Without the owner the business would cease to exist. Sure, this shows that you are great at what you do. However, businesses that rely completely on their owners are very difficult (if not impossible) to sell. The more that your customers and staff rely on you, the less valuable your business will be to a potential buyer.
You should implement strategies to reduce the business’ reliance on you. This could involve hiring a suitable manager, training staff, delegating key tasks to staff, developing standard operating procedures and implementing systems to automate certain tasks.
2. Document key processes
Are there certain key processes in your business that set you apart from the competition? If so, these processes form part of your intellectual property and they have value to a potential buyer. However, it is important that these processes are well documented to ensure that a new owner would be able to seamlessly transition into the business and follow these proven processes. Key processes might be documented in the form of written standard operating procedures or video guides.
3. Ensure all contracts are up to date
Do you have formal contracts with your key suppliers and customers? Are those contracts up to date?
When does your lease agreement expire? What are the terms of renewal?
These are important questions to consider when preparing a business for sale. The formality of these contracts will have a significant impact on the value of the business. For instance, if you have a exclusive rights to supply a particular product in a region, it is important that those rights are formally documented and that they are transferable to a new owner of the business.
4. Reduce working capital requirement
A high working capital requirement can have a negative impact on the value of a business. This is because buyers will need to fund both the purchase of the business and the large working capital requirement. By streamlining your processes to reduce your debtors and work in progress you can both release excess cash from the business and enhance the value of the business.
5. Find an appropriate candidate for succession
The most successful succession processes are generally those that involve a planned handover to an appropriate person (such as an employee) over an extended period of time. By identifying an appropriate buyer early in the process, you can integrate them into the business and gradually hand over key relationships. This can result in a more successful transfer of goodwill to the new owner and therefore enhances the value of the business to that new owner.