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How to sell your business at the right time for the highest price

If you’re wondering how much to sell a business for, remember: don’t settle for a far lower price than you deserve.

This may occur if you are a business owner who is so busy working ‘in your business’ that you lose sight of the full potential of your business as a retirement asset. Without a clear growth plan and exit path, you may be forced to sell due to a lack of foresight, or sudden changes in circumstance.

Whatever the reason for your sale, the best way to sell your business is to be prepared. You want the process to be as smooth as possible and you expect to be fully rewarded for the hard work you’ve put into running and growing your business.

The following checklist explores the factors that can influence the final sale price of your business, and outlines the preparation steps that will streamline the sale process and help you realise full value.

How to sell your business in five steps

Getting inside the minds of prospective buyers is the first step to knowing how to value and sell your business. Take an objective look at your business and identify anything that would make you think twice about buying it. 

Consider both the cosmetic issues, such as the condition and appearance of your equipment and premises, as well as legal and operational issues. Try to fix any problems in advance so they won’t become an issue during the sale process.

In the six to 12 months before you put your business on the market, you should give it a complete overhaul. Look for potential issues and fix them now, so they don’t hold up the sale.

  • Get tax, super and insurance payments up to date.

  • Ensure you comply with any regulatory or licencing requirements for your industry.

  • Try to lock in key employees with retention measures. This is especially important for professional services firms, where business is largely relationship-driven.

  • Identify and try to resolve any employee disputes, legal or operational issues. Be transparent and make early disclosure to potential buyers of any problems you have been unable to resolve.

  • Sell off any excess or obsolete stock.

  • Ensure your website, marketing collateral, and customer relationship management systems are relevant and up to date.

  • Ensure your premises are tidy and well maintained.

  • Chase up debtors and pay creditors.

  • Get a professional valuation of your business.

  • Document your operational processes.

Marketing your business at the wrong price can cost you dearly. The cost of undervaluing is obvious, but setting the price too high can be just as damaging to the outcome. You’ll waste both time and money on fruitless marketing efforts and could even alienate potential buyers. The inevitable drop in price also weakens your bargaining power and could lead to a lower eventual sale value.

Identifying a clear business strategy will help you realise the full potential of your business while you’re still at the helm, as well as making it more attractive when you’re ready to sell.

Your business plan should include thorough analysis of your business, environment, identify strategic objectives, and provide current and anticipated cash flows based on realistic assumptions. Buyers put a premium on credible growth and profit projections, clear risk profiles and detailed management strategies.

If you’re planning to sell to a related party, such as an existing supplier or your management team, it can be hard for both sides to be objective. A broker will ensure the transaction is handled fairly and at arm’s length.

Buyers will want to know why you’re selling your business, so be prepared to answer questions to reassure them the business is a sound investment.

Communicate clearly and openly with potential buyers and make sure there will be no surprises that could delay or prevent a sale. If there are issues or concerns you’ve been unable to resolve, raise these early in the negotiations so buyers can decide immediately whether they want to proceed, rather than pulling out after a lengthy and costly due diligence process.

Try to keep employees, clients, and suppliers (if appropriate) informed about how the sale will affect them. Uncertainty about the future may cause key team members to leave, which can affect the value of your business. Be open about your intentions and consider offering retention incentives to lock in people with valuable skills and knowledge.

Be sure to protect yourself with robust confidentiality agreements so you can safely make full disclosure to potential buyers as early as possible.

 

Knowing when to sell your business

The timing of your sale will depend on your reason for selling. You may have decided on your timeframe years in advance, as part of a succession plan, or be selling at short notice due to personal circumstances or market conditions.

Whatever the reason for your sale, the best way to sell your business is to be prepared.

Whatever the reason for your sale, try to allow as much time as possible. Rushing the sale or seeking an urgent settlement will drive the price down and may make buyers suspicious of your motives. Conversely, you may be able to achieve a higher value by offering a long settlement period or seller financing.

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