To help you, LKBB have compiled this list of things you might want to consider when selling your business:
1. Why are you selling?
It is important to have a credible reason for a sale, one that a purchaser can understand and feel at ease with. It also helps structure the most advantageous transaction. Reasons for a sale can include:
- Trading difficulties
- An unsolicited approach
- Matrimonial settlement
- Director/Partner disagreement
- Change of direction
- Advantageous tax circumstances
- Other business interests
- Business has grown above management experience level
2. What are you selling?
What kind of sale will deliver the best value?
- Asset and goodwill sale
- % sale of shares / equity partner
- Sale of company
- MBO – the current management team agree a deal to purchase the business from the owner.
- MBI- a management team come together to look for a business to buy and run.
- BIMBO – a combination of MBO and MBI where the incumbent management team hiresadditional member(s) into the team in order to compete the deal
- Trade sale
3. Tax regime
It is very important from the outset to know what the tax consequences of a sale will be.
- Capital Gains Tax (CGT)
- Roll over relief – at least one of the entities that had an interest in the asset before the change has an interest in the asset after the change. The asset either was a partnership asset before the change or becomes one because of the change.
- Relief – transitional capital gains tax
Does your business have management in place that can run things in your absence? If not, you need to consider the length and type of handover you are prepared to give.
5. Price Expectations
Are your price expectations realistic? How much would you pay for your business? Educated buyers are smart and will only consider reasonably priced businesses.
How, what and why?
- Maintenance of profits
- Market multiples
- Return On Capital Employed (ROCE) – is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed. Most often capital employed refers to the total assets of a company less all current liabilities.
Add backs for personal ownership
- Net Asset Value (NAV)
7. Method of Payment
Most buyers may want to defer some of the consideration. Many buyers will be suspicious if you don’t consider an element of deferred payment as it suggests a lack of confidence in your business, or a possible hidden agenda. That said, all deals are unique and structure depends on individual circumstance. Vendor terms or defferred payments in business sales are becoming more and more common. Especially now as the banks are very tough with lending in the current market in Australia.
8. What Do Buyers Look For?
Being able to supply correct management information in a timely fashion shows that you are organised and efficient. Buyers may lose interest if basic information isn’t to hand. A buyers and his advisers will probably raise the following issues in order to understand your business:
- 3 years accounts. Monthly management accounts, if in current year
- Business plan
- Company literature, brochures etc.
- Company information, shareholdings
- Asset inventory
- Staff: salaries, ages, job titles and length of service
- Reason for selling
- Ongoing management
- Profit record
- Strong cash flow
- Strong margins
- Good management controls
- Good spread of customers
- Up to date contracts or agreements
- Potential for growth
- Position in the market
- Strong brand identity
- Price expectations
- Tidy well maintained appearance
9. No Surprises
Most adverse situations, such as landlord/lease problems, outstanding loans, tax arrears, unfavourable equipment leases, health and safety issues, other regulations, and staff problems can be overcome providing they are disclosed.