Article compliments of Tarryn Wright at our partner Moore Stephens
The preparatory steps, even if the thought hasn’t crossed your mind yet!
Are you a small to medium-sized business owner? Selling your business is possibly not your priority right now, but in order to achieve a successful sale, you should start preparing early in order to optimise the value that you could receive. Let’s run through ten practical steps to help you achieve the best value on the ultimate sale of your business. Please note that this article is not in any way intended to be a technical treatise.
1. Know Your Reason for Selling
There are a variety of reasons for selling your business, including:
- New opportunities
Be prepared to explain to a buyer why you want to sell your business. Write it down and read it over. Does your reason make the business look bad?
2. Get Your Books in Order
A buyer will most likely perform a due diligence on the last two to five years’ worth of financial information. Is your record-keeping up to date? Are all your tax, VAT and PAYE returns submitted? Do you have any outstanding issues with SARS? Even if you are not required to be audited, perhaps now is the time to request a voluntary audit.
3. Get Your House in Order
Are your statutory records up to date? Are your leases, instalment sale agreements and hire purchase agreements up to date and filed together in a safe place? Ensure that all contracts and legal documents with any third or related party are safely filed, readily available and current.
4. Obtain a Business Valuation
Your books are in order and you have a strategy for the business into the future (with or without you), but you still don’t know what your business is worth. You have a gut feel, but you need a professional valuation. The person you choose to value your business needs to be independent and objective, representing neither you nor the potential buyer. You can use this valuation to set up a range of offers that you would consider. This is also a great opportunity to assess your business’ strengths and weaknesses.
5. Remove the Emotion
Selling a business is part of the natural progression of that business. Yes, you built that business and yes, the value you attach to it may be different from that of a professional valuator. That does not mean that the valuator does not understand your business or the market. He or she simply does not have the same emotional attachment to the business that you do. If you are truly unhappy with the valuation, get a second opinion. Also ask yourself if
the valuator gave you any indication as to why the business had a lower value than you expected. Is there something in the business that needs attention? Would it be better to wait for the market to improve?
6. Have a Plan
Planning is vital. Your business has not been sold yet and if you focus solely on selling and not on the operations of the business, you could see a decline in value. How do you see yourself spending this time? Do you want to focus on your business and getting it ready for sale, by ensuring profitability and good cash flow?
If so, appoint professionals to assist you with this transaction. Do you have a trusted advisor, attorney or accountant who can assist you? Many accountants and attorneys have specialised in mergers and acquisitions and have large networks of contacts that could assist in finding the right buyer for your business.
Have you consulted your tax advisor? When selling your business, taxes are inevitable. Capital Gains Tax now comes into play. Haul out the valuations you had done on 01 October 2001 and pass them on to your current tax advisor. If you did not value your business in 2001, speak to your advisor about how best to structure the deal.
8. Considering Offers
Your advisor has found you potential buyers, management has expressed an interest, a competitor caught wind of the sale. There are options to consider. Look at all offers objectively and weigh up the pros and cons. Discuss the viable options with your advisors. If the business is held in a trust, consult with all trustees, as the decision to sell cannot be made by only one trustee. Accept the offer that is best for you.
9. Due Diligence
You put your house in order before the professional valuation. Keep it that way. Most buyers will insist on a due diligence. There will be strangers at your premises, poking around in your books and asking questions. This is normal. It does not mean they don’t trust you. They are simply doing their homework. Once this is over, you can sign the sale agreement.
10. Letting Go
Even if you are going to continue in the business during a phase-out, it won’t be yours anymore. You might not even be the “boss” anymore. This is not an easy time and it can be tricky to let go of your old position and how you used to run things. This is also your time to pass on your knowledge of the business and operations and guide the relationships that the buyer will need to build with suppliers and customers. Make the most of this time and ensure that the business that you built continues to grow from strength to strength under new leadership.
The decision to sell your business, for whatever reason, will be a difficult one. Hopefully, using these practical tips, the process will be made easier and you will optimise the ultimate value you receive on the sale of your business