From the moment you acquire or commence a business you should assume that one day you will want to sell or merge it with another business.
To enable the best possible return, you should always keep the business in a ‘saleable state’. If you decide to sell your business today and want it listed for sale in 6 weeks’ time, most probably you will not be giving yourself enough time to maximise the potential return. Ideally, the best way to sell a business is over a 2 – 3 year period. This period will allow enough time to finetune the financial results and ensure that appropriate systems and records have been put in place to enhance the value of the key intangible asset in the business – Goodwill.
Goodwill is an intangible asset. This means that its value is in the ‘eyes of the beholder’. Whilst your personality, skills and marketing ability have been important in the establishment of the business, when someone looks to buy it, they ask:- Can the business function without you?
- If you are not there will a lot of the customers walk?
- If you are not there will the loyal staff remain?
- If you are not there will the suppliers continue to supply at negotiated
- terms?
Another key question that a purchaser will ask is ‘Is there a system?’ Systems mean that the business can operate without the owner. It is recommended that you prepare a detailed summary of what happens in the business relative to delegation to management and staff so that the business can function effectively, whether you are there or not. If it can, and the business is profitable then this should mean that you could significantly enhance the valuation of goodwill in the sales negotiations.
Over the next 10 years there are going to be more businesses for sale than there are potential buyers. This is because many ‘baby boomers’ will be wishing to retire. And young entrepreneurs are always trying to sell what they have developed, and later on start a new business.
The effects of the global financial crisis also need to be factored in. Many businesses have not been sold in the last couple of years as vendors withdrew their businesses from sale because of concerns regarding the global financial crisis. All of this is contributing to a large number of businesses being listed for sale.
Key questions are:
- Are there going to be enough buyers?
- Is your business going to be attractive enough to obtain the price you think your business is worth?
Selling a business is very complex. There are also important taxation and capital gains tax implications in the sale of a business. You should seek our advice to enhance the value of your business.