5 Steps to Selling your Business

When a business owner decides it’s time to sell, the selling period can be longer than most expect, and is largely dependent on how well the business is ready for sale in the first place. The reality is that many haven’t prepared their businesses because the decision to sell was not planned in advance.

As a result, an owner may feel forced to sell regardless, and so achieve a sub-optimal price. This would be a very poor outcome for owners who have devoted so much of their energy, emotion and capital in running and building their businesses.

Before a business is placed on the market, it may require the owner to go back a step before going forward and actually selling their business.

Step 1: The Decision to Sell

The reasons a business owner may choose to sell are varied –– ill health, increasingly more difficult and more competitive, the kids aren’t interested in taking over or just general tiredness.

Whatever the reason, the decision to sell usually happens surprisingly quickly, even if the idea to sell has been in the back of your mind for some time.

Timing is everything. When you decide to ‘get out’ the timing may not be in your favour.

If you haven’t quite reached that point of wanting to sell, you have time to reset the strategy of how you plan your exit. Your future exit is your plan’s starting point and you work back to the present day.

The steps that follow will still apply even if you plan to exit sometime in the future.

Step 2: What is the Business Worth?

The value of a business will in most cases be different from what you as the owner believes it’s worth, or how much you may want for it. Determining a market value of your business will make the entire selling process a lot easier, if you and the market are on the same page.
 
Indeed, knowing what your business is likely to be worth, may influence your decision as to whether or not you actually proceed in going to market.

One of the most important and easiest of steps is obtaining a value for your business by getting an earnings multiple for your business. The earnings multiple is a ratio of market price divided by earnings before interest and tax (EBIT) for businesses that:

  • operate in your industry, and
  • are of similar size.

The multiple is then applied to your earnings to arrive at a benchmark of what your business is worth. The benchmark offers a range of values from low, common and high.

The earnings multiple is not intended to be a definitive value, but rather a guide or benchmark of value. What your business is ultimately worth will depend on its intrinsic characteristics such as:

  • the reliability of its earnings,
  • it’s degree of dependence on you, the owner,
  • having patents and other intellectual property (IP), as well as
  • the type of competitive landscape within which your business operates.

The Valuemybusiness-RMIT Index of business value multiples can provide that vital piece of information––the worth of your business–– that could be the critical difference between selling or holding, and achieving the best possible result. 

Step 3: Reaching the Market

You know the value of your business and you still want to sell– so how do you engage the marketplace?

Do you try and do it all yourself or do you use an adviser? If you use an adviser, what will the adviser do for you?

Your adviser could be your accountant, lawyer, business broker or corporate adviser.

The decisions you make from now on will affect how the process of selling your business proceeds and whether you ultimately meet your goal of selling at a price that best meets your expectations.

If you don’t have an adviser to call on, the valuemybusines.com.au website has a list of advisors/value improvers, with information about their areas of specialisation together with all of their contact details.

Your adviser can assist you:

  • Prepare the necessary documentation, including confidentiality agreements,
  • Arrange the sale, either through their own network of clients and contacts, or by advertising your business on-line or a combination of both,
  • Formulate an appropriate marketing strategy and action plan,
  • Deal with any and all inquiries
  • Liaise between you and the buyer
  • Negotiate on your behalf
  • Finalise the sale to make sure all conditions are met.

The sale process will require a high level of involvement by you as the owner. In using an adviser, however, you will be able to utilise your time more effectively. Either way, the sale process will be a distraction from your usual day job of running a business.

Be prepared to get involved. The sale process can be quite long and take you on an emotional roller coaster – but like with most things, if you get good advice, prepare your business and you do the hard work you will reap the benefits.

Step 4: Preparing the Business for Sale

Most likely, your business may not be in a ready state for someone to buy it, or to buy it at the price you want for it.

You wouldn’t sell your house without sprucing it up and presenting in the best possible light? The same applies to your business, except a business is more complex and often takes far longer to prepare. It may take time, for example, to get the balance sheet in good shape, or in finding and placing the right people to run the business without you.

The better prepared the business, the smoother the sale process and the greater the likelihood of getting the best possible price.

When preparing for sale, there are multiple areas that may need to be addressed. These could be your sales and marketing strategy, better systems and procedures, for example; as well as other areas such IR, business planning, and dispute resolution which will indeed require specialist assistance.

Are there any legacy issues that can affect the value of your business, and are they still distracting you from running the business? They need to be resolved well before you place your business on the market.

The adviser/value improver will assist and work with you to improve your business. Whether you end up selling it or not, either way you have a more valuable asset as a result.

Step 5: The Sale

Once your business is ready, the start button is finally pressed and you begin, in earnest, to sell your business by placing it out on the market. By this stage of the process, you will have, for example:

  • A balance sheet that is in good shape,
  • Achieved your sales and marketing targets,
  • Improved your gross margins and profitability,
  • Got your inventory under control and dealt with obsolescent stock,
  • Resolved all the legacy issues that may have adversely impacted on value,
  • Have all the necessary documentation prepared for potential buyers –

So, from having decided to sell, and after gaining a value of your business, you elected to wait, improve and better prepare it for sale with the intention of gaining a better price.

Your business is now in a state of readiness to sell at a price you are now prepared to accept.

Good Luck!

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