Part 1 – Internal factors What are the key things you can focus on to…
How to Maximise the Value of Your Business – Part 2 External Factors
Part 2 – External factors
What do you need to prepare to attract the right buyer (who will pay more) and convince them of your value and finally make sure they “sign the cheque”?
Having bought or sold several businesses over the last 15 years, several factors stand out:
How would you add significant value to your business as a buyer? Who has complementary products or services or who already serves your clients?
1. Strategic buyer – for every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers – the most common example is complementary products and services. In strategic sales it is not about a multiple (financial sales of businesses are often based on a simple multiple of profit) it is more likely the price will be factoring in future strategic value. For example, many sales involve technology or IP assets (unique, well protected, hard or expensive to copy) and the buyer has the ability to leverage that acquisition – creating substantial value.
Is your business well documented? Do you have a strategic plan? Can you outline the key “valuable” aspects of your business?
2. Information memorandum (IM) document – it is amazing to see the number of businesses (otherwise quite valuable) who are prepared to sell their business on the basis of a cheap, home-made “flyer” style document. A well prepared IM will be able to attract and convince the right buyer. It should also be designed with the buyer in mind and highlight the strategic opportunity for the buyer.
If you sold your business today do you know how much Capital Gains Tax (CGT) you would need to pay? Can you restructure to minimise CGT by taking advantage of the small business CGT concessions?
3. Tax planning – every exit has several different elements of taxation, nearly always CGT, often stamp duty and sometimes other taxes as well. Inadequate planning in this area can cost you a large percentage of the sale price in taxation. This aspect should always involve a financial planner experienced in this area and use of Self Managed Super Funds (SMSF) strategies, for example, can add substantially to the financial outcome for the seller.
If a buyer were to go thru all of your documents and records – is there anything they should not see?
4. Due diligence and documentation – many transactions fall over at this point but this can actually be used to assist in improving the value of the business. If all of your documentation is complete, accurate, and up-to-date and demonstrates a well-managed business it will support your value proposition not detract from it.
If you were approached by a buyer today – how much is enough to sell?
5. Negotiation – being in a position to create some competitive tension (by attracting several of the right buyers) is a good start, but the conduct of the negotiations and discussions leading to the actual sale are a very important aspect and should not be underestimated. As a result of the Global Financial Crisis (GFC) the terms of sale are now a major factor, many deals involve a vendor finance aspect, some require vendor participation for some time after sale and often involve warranties or guarantees (that may be linked to the final pricing). Getting these terms wrong can see quite a good deal turn very sour.
Have you ever spoken to a lawyer about documenting your succession plan or business sale?
6. Legal agreements – often business owners are concerned that the legal agreements will ‘scare off the buyer’ however this is very rarely the case. Far more importantly, the legal agreements need to be structured to protect you after the sale particularly around the key issues of any warranties, assurances provided, and also any event or finance included as part of the sale terms.
Have you got experienced advisers who can assist in maximising the value and ensuring a successful exit?
7. Corporate advisers – business owners should not try to sell without the best advice. Well represented businesses are generally taken far more seriously and are perceived to be far more valuable. A corporate adviser who has a reputation for selling good-quality businesses automatically positions your business in that category.
The correct implementation of the items outlined above will help you to meet two key outcomes – maximising the value of the business and successfully extracting that value upon exit!
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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