Business

Strategic value

By Reuben Buchanan

Selling a business to achieve the best price requires a lengthy and detailed process in terms of preparation, time costs.

Anyone who has been through the process of selling a business will tell you it is no easy road – however with a little effort and a lot of preparation, you can dramatically improve the result.

It all comes down to risk – both within your existing business and risk of whether it can sustain its current earnings or improve them in the future. So the key to success is to lower the risk for the incoming buyer.

This will greatly increase your chance of getting the highest price from your business asset.

If you have decided to sell, there are many things to consider. But fundamentally, the more stable the business is, and the rosier the future potential growth, the higher the price you will achieve. Also who you sell it to is very important. This called strategic value.

You might be worth X to one buyer – but to another buyer – say competitors – you could be worth double that because they can leverage off your business or take you out of the market.

Here are some points to consider when looking at selling a business:

Make sure your financials are up to date – including historical and future.
Make sure the business systems and process are documented.
Tidy up your marketing material.
Have a business plan updated and ready to hand over.
Make sure your staff and management are the best you can find.
Make it easy for the buyer to come in, and easy for them to achieve what they want.
Allow adequate time to prepare and execute the sale. Fire-sales will not get you the result you want.
Make sure your advisors are up to the task. This includes accountants, lawyers and corporate advisors.
Do legal and financial checks up on your business and address any key risks that are uncovered.
Ensure all your contracts are in place and up to date – this includes staff, suppliers, licenses, contracts, distribution agreements, leases, etc.
Ensure your IP is owned and can be easily transferred to the new buyer.

There are many other factors which can affect the sale price of your business such as:

General market conditions – both on a macro and industry specific level.
Your ability to market your business to the right potential buyer – so targeting is the key.
The buyer´s current situation – eg they might be going through a re-structure and are not in "buying mode". In the case of individual buyers, maybe they are about to go on holidays or are in the middle of selling another business. So timing here is critical.
Luck – sometimes you can be in the right time and right place.

The best advice is for entrepreneurs and business owners to get as much knowledge on raising capital as possible.

Reuben Buchanan runs free events on exit strategies, capital raising and building corporate strategy.
To book into one of these events in your city, go to www.teldar.com.au and click on the events page.
Or simply email: r.buchanan@wholesaleinvestor.com.au