If you’re planning to sell your business, what things are likely to improve your chances of success?
I talk to many business owners who are planning or seeking to sell, and I’ve had the chance to see many succeed – but some fail to leap the hurdles needed. So, what makes the difference?
It’s fairly normal for sellers to be disorganised with their paperwork. When I ask them for copies of key documents (lease, customer contracts, employment contracts and so on), they may struggle to provide them. This is understandable as the seller has been focused on running the business and solving the everyday business challenges which arise. However, in my experience, good organisation is important to the success of transactions. A buyer (and sometimes, their financier) will need to see key material and know that it’s reliable. When they ask for it – and they will – they don’t want to hear excuses. They want to see the material promptly, so that they can gain confidence in the business which they’re interested in.
Know your security position
This includes being able to explain all of your current sources of finance and how they interact. Your bank overdraft (or term debt) is probably at the front of your mind – but what about that separate equipment finance which you got for the phone system, or for your (loosely-business-related) vehicle? Sellers often say that they have no finance arrangements, but forget things like the security connected to the bank guarantees for their lease.
It’s typical for suppliers to businesses to put PPS registrations in place when they have supplied on credit to the business. I regularly see anywhere from 10 to 100 (or more) PPS registrations when searching – and often, many of these are out of date and poorly understood by the seller. Sorting through these can take significant time and effort, and often causes delays in transactions. Every well-advised buyer will assess these things and will require the seller to deal with them, so it’s best to get ahead of the issue, understand what you’re dealing with and develop a plan for dealing with finance arrangements.
Understand the objective value of the business
Valuing real estate is hard enough, but there’s usually a strong dataset available with many comparable transactions. Assessing the value of businesses is even harder: the value can fluctuate significantly based on a huge range of factors, and ‘comparable’ information is hard to find; often anecdotal, and unreliable. Some businesses are worth literally nothing to a buyer, and others can be worth 2 or 3 times as much as the seller thinks. In my experience, buyers are usually better informed about the value of a business than sellers are.
It can be very useful to have a good sense of the objective value of your business. This will usually start with having a strong relationship with your accountant or financial adviser. You might want some sort of formal valuation from them, but at the very least, they should be able to help you understand the real drivers of value in your business and its level of appeal to a buyer.
Ask for help early
Talking with your professional advisers 3 or 6 months before you’re trying to sell (rather than at the last minute), and making sure you have a plan for these common sale issues, will make a big difference to your prospects of success.
If you’d like to discuss any of these issues or other legal aspects of buying or selling your enterprise, contact Stephen Robertson on (07) 3226 3903 or email email@example.com.