Plan, Plan, Plan:
In part one of our series, we looked at preparing for the sale by investing the time to make your business more attractive. A strategic approach with a carefully thought-out plan enhances your business's value against many external and internal forces.
Getting your business ready for sale takes up to three years of planning. During this time, you can groom your business by making sure you have the right processes in place, upgrading your financial systems, as well as identifying and implementing business improvements. Because buyers often use negatives to negotiate the sale price down, a business in peak condition will stand out – attracting both attention and a great price.
During the planning stage, it helps to prepare a business marketing strategy. Identify potential buyers or types of buyers and consider ways to create maximum interest and obtain multiple offers. Think about what kind of sale will be possible for your business – will it be a trade sale, share market float, management buyout, or family transition?
Negotiate confidently by knowing your worth and articulating it. Make sure you understand the tax implications and prepare yourself for the sale, both practically and emotionally.
Managing the Business Sale Rodeo
Part two looked at ways to smooth out the rough ride that selling a business can become and how to reduce last-minute angst by following a few basic guidelines.
- Firstly, it’s essential to ask the right questions. By having clarity upfront, you will be more empowered to decide on the best sale process, rules of engagement, and a realistic timetable.
- Secondly, get support by working with a confident, experienced, and persuasive advisor.
- Thirdly, remember that you need to set the rules, including the type and the approximate number of parties to approach and the extent of information shared with them.
Stay calm, remembering that poor decision-making often stems from an emotional standpoint. Your advisor will most likely be your best source of practical, objective and unemotional advice. Above all, keep your eye on the end game: achieving the price you want on your terms.
The Right Buyer
Part three focused on finding the right buyer. Here, it is vital to be clear about your expectations so that you can customise the sale process and maximise your success. You'll need to appeal to the right buyers and target them effectively and exclusively. It makes sense to attract buyers that can realise the most value through your businesses, so look for links to other existing businesses, especially when such links are exclusive.
Don't disregard non-financial expectations. These include your personal role in the transition, continuing obligations, and funding (lack of funds is a real time-waster). Also, consider timing and 'sleep soundly' factors. As with all negotiations, you may have to compromise on one expectation to achieve your goals for the others.
You can now start narrowing the search and target your perfect match. The process for uncovering a higher value buyer is multi-faceted. The ideal buyer is someone prepared to meet your terms because they don't want to miss out.
Minimise Tax
In part four, we concentrated on keeping SARS happy while taking advantage of generous concessions and planning opportunities by thinking ahead.
Naturally, SARS expects you to share your good fortune with them, and there are many traps for the unwary. Fortunately, there are legitimate ways to minimise, defer or even eliminate your tax bill. The amount you save depends on your age, business structure, length of ownership, and much more.
Although the rules are complicated, confusing and constantly changing, careful planning can make all the difference in not letting tax get the better of you. By doing your homework and having the right advice around reviewing your business structure, being informed about Capital Gains Tax (CGT) and ensuring that your records are in order, you can save yourself a bundle.
Maximise Your Value
Part five of our series explored maximising your value before you sell. To maximise value and sell at the price you want, you'll need to demonstrate profitability, identify potential and reduce risk.
Aim to present your business as an opportunity for more robust growth and less risk than similar companies on the market. Get this right, and buyers will have every reason to offer a premium price.
If you take the time to spruce up your business, boost profitability and mitigate risk, you could increase its value even more.
Broadcast your business's benefits, such as competitive advantage, growth potential, and synergies with potential buyers' companies. An ailing customer list, disengaged staff, and ageing assets are uninviting and translate into lower offers. Let your dedication shine through to the end by taking steps such as incentivising staff, offloading obsolete stock, and cleaning up warehouses.
The best time to start maximising your value is now. In this way, you'll reap the rewards of improved profitability and reduced risk both before you sell and when you exit.
Know the Impact of Working Capital
In the last part of our series (Part six), we investigated the importance of good working capital in selling your business. By leveraging your working capital to your advantage, you can walk away with more.
While buyers want to be sure that there is sufficient working capital to trade without injecting extra cash, sellers prefer to minimise working capital to pocket more of the sale proceeds. To increase certainty and avoid arguments, buyers and sellers should negotiate a target working capital amount that is mutually acceptable. This amount should be documented in the sale agreement, along with what is included and excluded in the working capital calculations.
You can optimise your sale outcome by taking steps such as understanding the target working capital, paying attention to variations, defining your idea of working capital clearly, verifying reported working capital assets and getting professional support.
For more in-depth information on any of these topics, have a look at our original pieces or chat with us directly.