| In an ideal world, business owners should plan for | | | | successful once the owner has left. Most buyers |
| the sale of their business from day one and go | | | | expect the seller to continue working in the |
| through a process of grooming it to achieve | | | | business for a period of two to four weeks. |
| optimum value. This means refining the operation | | | | Others prefer a longer period, which can be |
| so it produces maximum profits, and structuring | | | | negotiated and included in the Sale and Purchase |
| the business in a way that ownership can be | | | | Agreement. This sometimes occurs when an |
| transferred with minimum impact on ongoing | | | | owner is a critical part of the business. In some |
| operations and profitability. Business owners can | | | | cases, a business owner may wish to stay |
| adjust costs, increase sales and margins as well | | | | involved in the business indefinitely. |
| as restructure and review other variables in | | | | Should you Invest in your Business Prior to Sale? |
| preparation for sale. The timing of putting the | | | | When looking at a business, buyers will consider |
| business for sale should be planned for when the | | | | the level of debt and quality of assets, particularly |
| company is running at peak efficiency with a solid | | | | in manufacturing operations. Generally the sensible |
| record of profits that are trending upwards. | | | | advice is to continue investing in the business as if |
| Get the Records Straight | | | | you were going to keep running it yourself. Link |
| Some business owners are very diligent at | | | | brokers can provide advice in these and other |
| keeping detailed, up-to-date accounts and records | | | | aspects as part of a structured programme |
| relating to contracts, customers, staff, leases, | | | | covering both grooming and marketing of the |
| asset ownership etc. Smaller businesses run in a | | | | business. |
| more entrepreneurial style may not be quite so | | | | |
| organised. The first step in preparing your | | | | Will you Offer Finance? |
| business for sale is to get the books up to date | | | | It is not uncommon for a business owner to be |
| so there is a clear picture of your operation, with | | | | asked to leave finance in the business. This can be |
| supporting facts and projections. In addition to | | | | a good way of helping achieve maximum value |
| your actual accounts, ask your accountant to | | | | for the seller. It gives the purchaser additional |
| prepare a set of normalised accounts to show | | | | confidence in the business, knowing that you will |
| maximum operating profits. This means adding | | | | continue to have an interest in maintaining its |
| back any expenses or purchases (sometimes | | | | success. |
| personal) not directly related to the operation of | | | | THINGS YOU WILL NEED |
| your business. An explanation of any such | | | | - Profit and loss accounts for two to four years |
| corrections is often required and you should be | | | | - A schedule of abnormal and/or non-recurring |
| prepared to discuss this openly. | | | | costs in the accounts |
| Eliminate the Perks | | | | - A schedule of all items of personal expenditure |
| You will need to review how unreported cash | | | | and drawings |
| sales (if any) are managed and any personal | | | | - Brochures or marketing information of your |
| items that are paid for by the company such as | | | | product(s) or service(s) |
| travel or entertainment. Unravelling personal | | | | - Historical background on the business |
| expenditure from that of the business can make | | | | - Schedule of plant, equipment and any equipment |
| a big difference to the selling price. For example, a | | | | leases |
| $20,000 trip paid for by the company is | | | | - Copy of franchise agreement (if applicable) |
| essentially $20,000 off the bottom line, and could | | | | - GST Returns for current trading year to date |
| reduce the sale price by four or five times that | | | | - Stock value estimate within 10-15% |
| amount. Review leased and financed assets to | | | | - Lease details including rent, term, renewals, |
| see whether they are better converted into fully | | | | outgoings, etc |
| owned assets. | | | | - Staff levels, including part-timers and contractors |
| Review Accounting Policies | | | | - Staff employment contracts including EPP |
| Accounting policies vary widely. In some cases, | | | | clauses |
| business owners discover that their accounting | | | | - Details on any trademarks, patents, licenses, |
| policies are not the same as those currently | | | | agencies or intellectual property (IP) |
| adopted by others in their industry. Some | | | | - Details of any major strengths and/or |
| accounting policies are tax driven resulting in | | | | commercial advantages |
| conservative profit recognition, whereas others | | | | - Competitor analysis |
| are earnings driven, seeking to maximise profit. | | | | - SWOT analysis |
| Changing your accountancy policies to conform to | | | | - Business organisational chart |
| those of your industry may increase the market | | | | - Business plan |
| value of your business. | | | | The financial information must be current and |
| Are you Critical to the Business? | | | | accurate. If you are selling half way through the |
| A business is more attractive if its success is not | | | | year, ask your accountant to prepare half-year |
| solely dependent on the input of the owner in | | | | accounts. |
| terms of operational know-how, technical skill or | | | | Good luck in preparing your business for sale and |
| personal relationships with clients or suppliers. It is | | | | look out for more of my articles on the business |
| helpful to have a reliable management team to | | | | sale process. |
| demonstrate that the business will continue to be | | | | |