Home | Selling Your Business | Seller Faq
Are you Ready to Sell?
If you want to obtain the best value for your business, you should start the process well in advance of making a final decision to sell. Being ill-prepared or selling ‘under urgency’ is inevitably stressful and costly. By contrast, investing in becoming ‘sale-ready’ before you have to, helps ensure that the actual sales process delivers the best outcome with minimal hassle.
Many business owners find that, when it’s time to sell, securing the right price and terms can be challenging. While it is essential to attract the right sort of buyer, employees and existing customers can also be uneasy about continuing with your business if it’s on the market.
Every business is different, which is why the assistance we offer is specifically geared to meet your needs. Our unique VA (Value Activator™) System is designed to make the process as efficient, professional and effective as possible, including obtaining the best possible buyer and price for your business. However, the VA system works best when we can begin working with you well in advance of selling your business.
What is my Business Worth?
The first question almost every seller asks is: “What is my business worth?” If we were selling our own business, that is the first thing we would want to know. It is also counter-productive to market an over-priced business, so it’s important for you and us to agree on price expectations before presenting your business to the market.
While there are some generally accepted “rules-of-thumb” that we can apply as part of our analysis in establishing a likely sales range, ultimately your business is worth what ‘the market’ is prepared to pay for it at a given point in time. Our unique VA (Value Activator™) System prepares your business to sell for an optimal price.
As part of the process we will also prepare a business appraisal.
Do you Really want to sell this business?
The second question to consider is: “Do you really want to sell this business?” If you’re really serious and have a legitimate reason (or reasons) to sell, it will most likely happen.
You can increase your chances of selling if you can also answer “Yes” to the next 2 questions:
1) Are you willing to invest in getting ‘sale-ready’ well in advance
2) “Do you have reasonable expectations?”
It doesn’t make any difference what you think your business is worth, or what you want for it. It also doesn’t make any difference what your accountant, banker, lawyer, or best friend thinks your business is worth. Only the marketplace can ultimately decide the value of your business!
Important Questions Business Buyers Ask?
If you are considering selling your business, it’s useful to know some of the important questions business buyers commonly ask. As part of our unique VA System™ we will work through these (and many other) questions so that when it comes time to sell, we are fully prepared with complete responses.
Perhaps the most common question is “If this is such a good business why is it for sale?” How you answer this question can make or break a sale. A vague answer can discourage buyers from further consideration of your business, as they may assume the worst.
If you say you are “burned out’ or just ready to try something new – that’s fine. If you’ve owned and operated the business for 10 to 15 years, buyers will most likely accept your reason for sale and continue their research. However, if you’ve only owned and operated the business for two years or less, a prospective buyer may find it concerning that you are already burned out or ready for something new.
If you’re unwell, be open about what the problem is; otherwise buyers will think you are just sick of the business. The worst thing a seller can do is to fudge an answer or not provide a completely honest answer. Buyers will, most likely, see right through the given reason for sale and walk away. So, even if you really are tired of or just plain hate running your own business, be up front and explain why. Honesty is always the best policy.
Some other very common questions are:
- How long has the business been in business?
- How long has the present owner owned the business?
- How much money is the business making?
- Are the books and records readily available?
- Will the new owner help me learn the business?
Who are the Potential Buyers?
Once the decision to sell has been made, the business owner should be aware of the variety of possible business buyers. Just as business itself has generally become more sophisticated, the people interested in buying them have also become more divergent and complex. Following are some of today’s most active categories of business buyers:
1. Family Members
The notion of a family member taking over is attractive to many of the parties involved because they envision continuity, seeing that as a prime advantage. And it can be, given that the family member treats the role as something akin to a hierarchical responsibility. This can mean years of planning and diligent preparation, involving all or many members of the family in deciding who will be the “heir to the throne.” If this has been done, the family member may be the best type of buyer.
Too often, however, the difficulty with the family buyer category lies in the conflicts that may develop. For example, does the family member have sufficient cash to purchase the business? Can the selling family member really leave the business? In too many cases, these and other conflicts result in serious disruption to the business or to the sales transaction. The result, too often, is an “I-told-you-so” situation, where there are too many opinions, but no one is really ever the wiser. An outside buyer eliminates these often-insoluble problems.
The key to deciding on a family member as a buyer is threefold: ability, family agreement, and financial worthiness.
This is a category often overlooked as a source of prospective purchasers. The obvious concern is that competitors will take advantage of the knowledge that the business is for sale by attempting to lure away customers or clients. However, if the business is compatible, a competitor may be willing to “pay the price” to acquire a ready-made means to expand. A business broker should be of tremendous assistance in dealing with the competitor including the issues of confidentiality and commercial sensitivity.
3. The Foreign Buyer
Larger businesses may be attractive to foreign buyers and/or investors for a variety of reasons, including brand value, access to new expertise/IP and/or new channels.
Smaller businesses may be of interest to some of the many foreigners arriving in New Zealand with ample funds and a great desire to share in the Kiwi Dream. These people often struggle obtain jobs in their previous professions, because of language barriers, licensing, and specific experience. As owners of their own businesses, at least some of these problems can be short-circuited.
These buyers are often hard workers and can very successful small business owners. However, their business acumen does not necessarily align with that of the seller (as would be the case with any inexperienced owner). Again, an experienced business broker can help approach these potential problems.
4. Synergistic Buyers
These are buyers who feel that a particular business would complement theirs and that combining the two would result in lower costs, new customers, new distribution channels etc. Synergistic buyers are more likely to pay more than other types of buyers, because they can see the results of the purchase. Again, as with the foreign buyer, synergistic buyers seldom look at the small business, but they may find many mid-sized companies that meet their requirements.
5. Financial Buyers
This category of buyer comes with perhaps the longest list of criteria–and demands. These buyers require maximum leverage, but they also suit the seller who wants to continue running the company after its been sold. Most financial buyers offer a lower purchase price than other types, but they do often make provision for what may be important to the seller other than the money – such as retention of key employees, location, and other issues.
For a business to be of interest to a financial buyer, the profits must be sufficient not only to support existing management, but also to provide a return to the owner.
6. Individual Buyer
When it comes time to sell, most owners of a small to medium (SME) business gravitate toward this buyer. Many of these buyers are mature (aged 40 to 60) and have been well-seasoned in the corporate marketplace. Owning a business is a dream, and one many of them can well afford. The key to approaching this kind of buyer is to find out what it is they are really looking for.
The buyer who needs to replace a job is can be an excellent prospect. Although owning a business is more than a job, and the risks involved can frighten this kind of buyer, they do have the “hunger”–and the need. A further advantage is that this category of buyer comes with fewer “strings” and complications than many of the other types.
The unique VA System™ also involves clarifying an ‘ideal buyer profile’ and quietly identifying potential buyers who may be approached when the business is ‘sale ready’. The ideal marketing process involves selling direct to a pre-qualified party without having to advertise.
Email or call Business Associates™ today for an obligation-free discussion about how to prepare your business for exit.
If you have any questions that we have not covered please don’t hesitate to contact us.
It is important to highlight that a business broker, while often being highly qualified and experienced, is NOT a registered valuer. As such they cannot provide a ‘registered valuation’. If you require a registered valuation you should commission a suitable qualified Valuer. When the terms ‘valuation’ or ‘value’ have been used in this website they generally refer to an ‘appraisal’ or ‘market price’ and should not be confused with a formal valuation.
A Business Appraisal is frequently subject to the judgment and experience of the person conducting it and the quality and accuracy of the information furnished to him or her. Some issues that are considered when arriving at a ‘market value’ for the business include:
• Product Diversity – Firms with just a single product or service are subject to a much greater risk than multiproduct firms.
• Customer Concentration – Many small companies have just one or two major customers or clients; losing one would be a major issue.
• Intangible Assets – Patents, trademarks and copyrights can be important assets, but are very difficult to value.
• Critical Supply Sources – If a firm uses just a single supplier to obtain a low-cost competitive edge, that competitive edge is more subject to change; or if the supplier is in a foreign country, the supply is more at risk for delivery interruption.
• ESOP Ownership – A company owned by employees, either completely or partially, requires a vote by the employees. This can restrict marketability and, therefore, the value.
• Company/Industry Life Cycle – A retail/repair typewriter business is an obvious example, but many consumer product firms fall into this category.
Other issues that can impact the value of a company would include inventory that is dated or not saleable, reliance on short contracts, work-in-progress, and any third-party or franchise approvals necessary to sell the company.
Want to learn about selling your business and how it rates on the Value Activator (VA) System™ then contact us now!