5 Questions To Ask Yourself To Sell Your Business Quickly
5 Questions To Ask Yourself To Sell Your Business Quickly
So you’ve made the decision you want to sell your business.
That’s only part of the equation.
The next step is to determine if your business is sale-ready.
In order to answer that question, you have to ask yourself a number of questions, in turn.
Business Trade estimates it can take 6 to 9 months to sell a business and that you should prepare two years in advance in order to get the best price (preparing to sell) .
So naturally you want to ensure that it’s in an attractive state to any person wanting to buy your business.
It doesn’t matter what type of business you own.
Professional services firm, online ecommerce business, trade show and event businesse.
Owners of all types of businesses need to prepare, accordingly.
So let’s take a look at those questions that can help you determine whether you’re on the path to being able to sell your business quickly and for the best possible price.
What Do I Want To Do After I’ve Sold My Business?
So the sale contract has been signed; the purchaser now owns your business and the money’s hit your bank account.
Do you want to hit the golf course, take more holidays or even look at a new challenge?
Succession planning in relation to your business encompasses not only how the business itself will transition to a new owner but also how you will transition to a new stage in life.
And part of the preparation of making your business sale-ready includes making yourself transition-ready.
Which entails asking yourself some pertinent questions.
- Do I want out of this business completely?
- Do I still want to remain involved in some capacity?
- How do I picture a normal day for me after I’ve sold my business?
- Are financial factors driving my decision?
- Is it a lifestyle decision?
Being honest with yourself in answering these questions will help you formulate if you will indeed sell and how much of your business you will sell.
For example, whilst many business owners may end-up selling their business, the desire to retain some involvement plays a part in how they structure the sale.
Indeed, in their paper “Contract Work at Older Ages”, Abraham, Hershbein & Houseman found “In other cases, motivations such as the desire to stay active, connect with others, or pursue a hobby may be more important” were factors, other than financial considerations, when looking at contract work in retirement.
This can eventuate in vendors selling only a portion of their business and retaining an interest, or selling completely but agreeing to undertake contract work for the business, which satisfies their desire for involvement.
Knowing what you want to do after your business is sold will help achieve the best way to go about it.
How Do I Want To Sell My Business?
For most private business owners, when first considering the sale of their business, they immediately think the transaction will result in the sale of the entirely of the business to an independent third-party.
The business engages a broker to solicit offers to buy the business, an appropriate time-frame to conduct due diligence is provided and a sale eventually results to an unknown party.
But depending on what you want out of the sale, there are a number of ways you can sell your business.
Sale to Staff
Depending on the business acumen of employees, this may be the path of least resistance.
Sometimes known as a management buyout, the business is sold to people who already have an intimate knowledge of it.
The due diligence process can therefore sometimes be shortened and the sale process quickened.
The benefit of this option is that the new owner/owners already come from within the existing business and the risk of the culture being adversely affected by a new owner doesn’t arise.
The sale can be undertaken in one transaction or over a period of time, contingent upon various milestones to be achieved by the business.
Ownership of the business by employees also provides an incentive to ensure the business progresses as doing so will generally increase the capital value of their investment.
Separating Property From the Business
It’s quite common for a number of businesses to own the premises from which they operate.
This is prevalent in industries with a strong real estate component (eg. self-storage, manufacturing, etc).
When a business owner wishes to sell the business, they have the option of selling the entirety of the business (including the property), or carving-out the property and selling just the business operations.
The result is that the vendor goes forward acting as landlord to the business and receives an ongoing income stream in the form of rent.
Depending on how ownership of the property has been structured, this is why you see many sale contracts stating that the sale of a business is conditional upon the purchaser renting the existing premises.
In those cases where the business is sold in its entirety, there may be scope for the vendor to retain a financial interest by providing ongoing services.
These could be in the form of being retained as an employee, contractor or providing consulting services.
There may even be scope for additional benefits to be provided based on various milestones achieved by the business.
This allows an ongoing income stream to be earned by the vendor whilst retaining an involvement with the business.
Selling to Private Equity
Depending on the fundamentals of your business, it may be an attractive acquisition for a Private Equity firm (“PE”).
Most PE firms only wish to own a business for a certain time-frame, increase it’s value and then sell it.
Depending on where your business fits-into a PE firm’s strategy, you may be able to benefit from a relatively quick sales process, especially if the PE firm is engaging in a “roll-up” acquisition strategy.
Be warned that most PE firms generally look at businesses valued in the $5m+ range, although in recent years, this benchmark has been lowered. (see How Much Is This Business Worth?)
Simply Close the Business
If all else fails and you find that nobody is interested in a business acquisition, the best option may be to simply wind-up the business.
Practically, this involves simply selling all remaining stock, plant & equipment and any other assets, for whatever price you can get.
Whilst this may sound like an unattractive option, the cost of keeping the business open and expenses incurred in attempting to sell it may prove greater than shutting-down operations.
A sobering fact is that far more Australian businesses that do not allow for a substantial preparation period in becoming sale-ready, result in a wind-up than are ever sold.
What Is Any Purchaser Looking To Buy A Business Wanting?
Whenever you’re looking to sell your business, it’s important to understand the motivations of any potential buyer.
Does the new owner want to work day-to-day in the business?
If so, would the business be a good fit if there is already a general manager running day-to-day operations?
Is the new owner looking for a a strategic acquisition with existing management, to add to a portfolio of industry-specific businesses?
If so, would your business be appropriate if it was you who was driving day-to-day operations?
What if the new owner is looking for a business he/she can scale with minimal effort?
Then maybe your business needs to ensure it has up-to-date SOP’s and automated processes/operations.
Having an idea of what any potential buyer may be looking for when buying a business such as yours allows you to tailor the sale-process to focus on satisfying those needs and wants.
Have The Operations Of My Business Been Systemised?
More and more, all types of businesses are availing themselves of systems and processes improvement practices.
This might entail utilising automation for business websites, such as with online ecommerce businesses.
Alternatively, it could mean ensuring daily operation procedures are well-documented, when the business consists of a significant labour component, as with professional services businesses and trade show and event businesses.
The less a business has to rely on a “key person” and manual processes, the more it’s value is derived from the infrastructure of the business.
In other words, very rarely does a potential purchaser of a business want to buy something that relies solely on their personal effort.
And the more systemisation that is inherent in a business, the greater the likelihood of an increase in the value of your business.
Bottom line … make sure your business has its day-to-day operations maximised as much as possible through systemisation.
Have I Considered The Taxation Implications Of Selling A Business?
No matter how you decide to sell your business, there will be taxation implications.
The sale of a business for $500,000 doesn’t mean you end-up with that $500,000 in your bank account.
A big chunk of that may end-up having to be paid as tax.
Or by utilising the Small Business Capital Gains Tax concessions, you may be able to arrive at a situation where very little is paid in tax.
That’s why it’s important to discuss this with your accountant as soon as you’ve made the decision you want to sell your business.
Careful planning and consideration of all relevant factors may allow the sale of a business to occur in a manner which results in a reduced tax burden.
Which is why it’s crucial you obtain advice from your accountant (and solicitor where necessary).
Don’t skimp on advice in relation to an area of such complexity.
There are plenty of steps that should be undertaken between the time you make the decision to sell your business and it ultimately occurs.
People often talk about the due diligence that a buyer does when looking for a business for sale.
But it’s equally important that you, as seller, undertake due diligence about your own business, well before a buyer even comes onto the scene.
By asking yourself the questions outlined above, you go a long way to positioning your business to sell quickly and to the right buyer.
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