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Selling Your Business: Part 1- Preparation

Selling Your Business: Part 1- Preparation

Olivier Barbeau, Kai Reuning, Hans Hillermann

The Moore Advisory Johannesburg Team has put together a six-part series of articles to assist you in understanding the sales process.
 
Our clients are primarily successful entrepreneurs that have built up one (or more) successful businesses. From our experience, as their advisors, the following are the main reasons that entrepreneurs consider selling all or a part of their business:
   
  • Realising value for all their hard work and risk taken in establishing a business that currently makes up the bulk of their wealth. These entrepreneurs may be looking at selling only a portion of their businesses to unlock value or they would consider selling their entire businesses.
  • Getting a strategic partner on board. In the South African context BBBEE is critical to ensure that businesses continue to grow and excel. Entrepreneurs will want to partner with a black investor who can bring maximum value – both initially on sale, as well as down the line.
  • Emigration may be another reason that entrepreneurs are wanting to sell their businesses. These business owners will want to realise maximum value whilst ensuring the sustainability of the businesses that they have built up.
  • Succession planning is the final reason that our clients typically have for wanting to sell their businesses. These clients have long-running family-owned businesses that have built up great value for their families. For a number of reasons, there may not be succession within the family. These clients will want to sell their businesses (all or part) to bring on board a successor who can continue to grow the business.
In each of the above scenarios, you can take steps now to make sure you are properly rewarded for your years of hard work and sacrifice for when the ‘For Sale’ board finally goes up.
 
In a highly competitive marketplace, those who prosper at sale time are those who are prepared. This means investing time now in making your business attractive to buyers, knowing your worth, understanding the tax implications and becoming familiar with the sale process.
 
This six-part series will help you on this journey.
 
First of all: Is your business ready to sell?
 
Plan, Plan, Plan
 
An owner who takes a strategic approach to selling is better placed than one who doesn’t. All businesses are affected by factors outside their control, such as economic fluctuations and social trends. A carefully thought-out plan protects the value of your business against the vagaries of external forces and many internal ones, particularly if you need to sell quickly.
 
The long-term financial consequences of a poor sale price could be significant for you and your family. Selling your business is one of the biggest financial decisions you will ever make. Yet in our experience, most people put more effort into maximizing the value of their homes than they do into preparing their businesses for sale.
 
Getting your business ready can take up to three years of planning. That is a small investment of time to ensure you maximize all your risk and reward to date and importantly maximize the value for you and your family.
 
First steps
   
  • Groom your business: Consider how to make your business more attractive: Put in place systems and processes; upgrade financial systems; or put together a plan to identify and implement business improvements. The sale price will be driven by the strength of your business so, just as you would spruce up your house for sale, ensure your business is in top shape. Otherwise your prospective buyer will use any negatives to negotiate the sale price down. By contrast, a business in peak condition will stand out and attract both attention and a good price.
  • Plan your marketing strategy: Who are the potential buyers of your business? A larger industry player, a smaller competitor, overseas investors, family members and private equity buyers are just a few possibilities. What is the best way to create maximum interest and obtain multiple offers? A trade sale, share market float, management buyout and family transition are all possible. Once you have a marketing strategy, you can decide how to attract the right buyer.
  • Know your worth: To negotiate confidently, you or your advisor must clearly articulate what your business is worth to each prospective buyer. This means not just the standalone value, but the strategic value to the buyer. Strong profits, a future growth path and no further capital investment are plus points for most buyers. Potential synergies in areas such as distribution channels and product lines are other common benefits.
  • Understand tax implications: Ask your advisor to explain the taxation implications of selling and work out a tax minimization plan. This may mean putting in place new structures, which may take time to implement.
  • Prepare yourself: Selling your business is an emotional process. The more you understand it, and the more you plan, the more in control you will feel. Think about your role during the sale and afterwards. Will you remain with the business in any capacity? Could you stay on for a transition period? What will happen to any family members you employ?
Over the next few months, we will cover all these topics and more.
 
Coming up next: Managing the ups and downs of the sales process.
 
For more information on selling your business, contact Moore Johannesburg, or your local Moore firm.
 
Olivier Barbeau: oab@moorejhb.co.za
Hans Hillermann: hh@moorejhb.co.za
Kai Reuning: kr@moorejhb.co.za