If you woke up one day and decided it was time to sell your business, what preparation would you need to undertake, and who would you engage to help you? You probably have a price in mind that excites you and would make you happy. You would have a sense of achievement because you had worked so hard over the years, and selling might just give you the golden ticket to big dollars and freedom.
However, many businesses simply fail due to the lack of preparation and process required to sell their business, which causes anger and frustration.
So how do you value your business if you needed to sell it tomorrow? Many business owners think about this process when it’s miles too late, hoping for a big payout for their retirement, but most times it doesn’t work like that. What would happen if there was suddenly a need to sell your business due to illness or personal issues? What about if a competitor approached you to buy you out? Are you strategically ready?
Many business owners have a price in mind that they think their business is worth, but are they realistic?
Never underestimate a potential buyer who is looking for flaws in your business to drive the price down.
To successfully sell your business you need year-on-year growth, for a minimum of 3 years. The multiplier valuation method is normally 3 to 3.5 times your EBIT (Earnings Before Interest and Tax), less projected cash flow losses, business loans owed, or any company taxes/ superannuation that are not up-to-date.
To successfully sell your business with the highest price, you need a good due diligence plan that is well documented, encompassing the following:
- Quality financial records demonstrating year-on-year growth that meets or exceeds budget
- A corporate structure that has long-term employees and leaders where the business is sustainable and not relying on you
- Company processes and systems in place demonstrating strong capability that is well documented in the business, with no gaps
- Up-to-date employment contracts, policies and procedures implemented and understood within the company, including efficient record keeping well-documented over a long period of time
- Client records, databases and long-term contracts that will boost the value of your business
- Supplier agreements in place and binding, giving your business a competitive edge
- Minimal, or no debt in the company such as business loans, unpaid taxes, super or other company obligations
Many business owners get disappointed when they get their business valued and then must back track, trying to get the above addressed as quick as possible whilst the potential buyers are pulling apart your business and driving the price down. This can be very stressful and frustrating for you, whilst leaving you very vulnerable in your business.
To prevent this, you need to build a Strategic Business Plan now where your business is very sustainable and attractive to your potential buyers. Buyers are looking to purchase a business where the business is not dependent on the owners and goodwill.
Director of KBA, Colin Wilson, can help Chair and facilitate this process with KBA’s services and tapping into industry experts through the Advisory Board Centre. KBA also has access to over 180 industry experts who can also advise on ways to grow and exit your business when you’re ready. By going through this exercise of having a Strategic Due Diligence Plan for your business and building the strong foundations necessary will help you drive the highest price possible. We have also experienced some business owners who decide to keep their asset of the business as it becomes more profitable and once their succession plan is working toward what they want to achieve.
When you consider the cost of a broker and legal fees for selling a business, why wouldn’t you set up a stronger preparation process and link it to a strategic plan, so you are in control? KBA has developed a strategic plan which is designed to make the changes and set up the necessary processes which can be developed over a 1 to 3-year period as articulated above.
In today’s world, to stay competitive you need industry experts to help you with your journey. This is especially the case if you are a family business, or a business looking to make changes. Should you want to sell now, create a succession plan internally (staff or family) or prepare your business for sale in the future, then seek the advice for the highest price possible.
At KBA we are very passionate about taking businesses from good to great. We can help you with this process and assist you to achieve your business and personal goals. With competitive markets popping up everywhere, it’s better to be prepared and not delay this process. You would also be surprised just how much more motivated you will be working on your business!