As another year is coming to an end, one starts to reflect on how the year has gone and what to look forward to in the new year. One option that tends to spring to mind for a business-owner is the possibility of selling their pride and joy - their family business - and embark on an alternative business venture or even retirement. The decision to sell one's business is not often an easy decision to make, or a quick and simple process to go through. You will need to do some homework and get all your ducks in a row to ensure you extract the most money from a willing buyer.

At its simplest form, a business is made up of people and processes. Often the success of the business is reliant on a few key people.  Most often than not, you - the business owner -  will be one of those key people. For a potential purchaser, this is not necessarily a good thing, as the last thing they want is to purchase your business and not be able to operate the business in a similar manner, as all the relationships and business 'know how' may not be easily passed onto them.

There is an opportunity here to look at how your business is currently operating and to put in or strengthen the management team so that the business can operate effectively without you being there. Where appropriate, this may mean implementing an advisory board, a chief financial officer, an operations manager, a business development manager or a general manager if you do not already have one in place. Ensure everyone has current employment contracts in place. It is vital that they know their roles and responsibilities, and are appropriately remunerated. The last thing you want is for one of your key staff to leave even before your business is put up for sale.

Knowing what you would like for the business is a good start to determine some short-term financial goals for it.  Be realistic with what your business is worth. Your accountant will be able to assist you in valuing your business and will also give you guidance on the financial performance you will need to achieve to get the sales price you are after. Your desired sales price will guide both the business plan and forecast of the business going forward. 

Revisit your business plan or create one if one does not exist. An updated business plan will demonstrate to a potential purchaser where the business is going, how it will grow and achieve its objectives, and will demonstrate good management. It would be good practice to have an updated forecast to help demonstrate the financial outcome of the business plan.

In terms of company performance, focus on making the business more profitable. This includes growing the business through increasing sales through a combination of increased number of customers, increased sales frequency with your customers, increased value of each sales transaction and increasing efficiency. Look to cut costs where possible and run your business as lean as practical.  The business sales price is often calculated on an earnings before interest and taxation (EBIT) multiple so the higher your profit, the more you are going to receive once the transaction has been completed.

Take a look at both your customer and supplier contracts.  Where appropriate, it would be good to lock in customers on a long-term contract as this will assist with demonstrating what future maintainable earnings the business has. This is another key factor in determining the sales price of the business.

Now would also be a good opportunity to see what is happening in the industry you are operating in and what your competitors are currently doing. Know your strengths and build on them to distinguish yourself in the marketplace. Compare your current operations to the industry’s best practice and invest in your company so that it is able to grow to achieve your desired sales price. This investment will also appeal to potential buyers as they know they are buying something unique and will be willing to pay for that uniqueness.

Settle any disputes you may have. The last thing you want is for is any unwanted unresolved issues negatively impacting on the sales process. The journey of getting your business ready for sale may at times feel harder than what it needs to be but the end of the journey will be worth it. By addressing the above will put you in a better position to get that sales price you are after.

If you need assistance preparing for the sales journey or would like to assess your options, contact your Bellingham Wallace advisor today to discuss this further.