Selling for Top Value
The decision to sell your business is straightforward. You’ve worked very hard for many years to create your successful business and naturally you deserve top value, and now it is time to move on. There could be many reasons why you have made the decision to sell. You may wish to retire or emigrate or just try another venture.
Before you sell, there are a few points that you need to know that you may not be aware of and most brokers won’t tell you. The first is that every owner must realise that their business is competing in the marketplace with other sellers. In fact, every business is in competition with other businesses for sale within their Profit Range and general area. The second point is that the sale of a business does take time. Internationally, the average is between 6 and 9 months.
Unfortunately, in South Africa we don’t have any stats, but the reasons are generally; business is overpriced; not receiving sufficient information or audited financials; having a hidden income or the business is just not saleable.
With those points in mind, let’s prepare your business to achieve top value.
You need to prepare an information pack with the following information:
- The last 2 years audited financial accounts;
- The most up to date management accounts;
- The last 12 months Vat returns;
A list of all the assets (Machinery, equipment, furnishings, vehicles etc)
- in the business with a realistic second hand value. (Not depreciated nor new);
- A list of items on HP or Lease with settlements amounts;
- The approximate cost value of present stock;
- A copy of your present lease of your premises;
- A copy of your business licenses, if applicable;
- A synopsis of your business with future opportunities;
- A list of staff with job functions and salaries/wages (no names);
NB: You may think that you will wait until a genuine buyer comes along. Well, then join the ranks of 80% of sellers, because serious buyers don’t wait, they have just moved on. While compiling the information, call on an experienced business broker for assistance and he will advise you. Choose a firm that is registered with the EAAB (The Estate Agency Affairs Board) and has a current Fidelity Fund Certificate.
Selling for Top Value
As a business broking firm, our aim is to package your business, so that potential buyers will see the value as you see it and help you reach your objective. You want to be certain that the sale of your business will be successful. A broker could be the difference between making a sale or not and achieving the highest value. One of the biggest advantages is that he can market your business widely in a confidential manner and screen buyers without the whole world finding out that your business is for sale.
The confidentiality of selling your business is extremely important because if it becomes common knowledge, key staff could leave, your opposition could poach your clients, your creditors and bankers could get nervous and call in their debt/overdraft and your business could be affected.
The broker will require a signed mandate from you giving him the authority to offer your business for sale to qualified buyers and earn an agreed commission if he concludes a successful sale.
The mandate could be an open mandate or a sole mandate for a period say 30/60 days and then reverting to an open mandate if you are not happy with his service and want to bring in other brokers.
Your broker would have explained how he is going to market your business and bring around qualified buyers (have money + expertise) who have signed a NDA (Non-disclosure Agreement) which helps to protect your confidentiality.
If the buyer is interested he should be given the Financials and Management accounts to peruse. The next stage would be for the broker to have the buyer complete an “Offer to Purchase” agreement setting out clearly all the terms and conditions of the purchase for you and your attorney to consider and if necessary make a counter offer until an agreement acceptable to both parties is reached.
The buyer would pay a deposit into the broking firm or attorney’s Trust account as set out in the sale agreement; thereafter he is given the whole Info Pack and he must bring in his accountant to carry out a “Due Diligence” investigation and verification on the profitability and viability of the business.
If the due diligence reveals any discrepancies he is entitled to walk away and his deposit is returned. If everything is satisfactory, then the balance of conditions as per the agreement needs to be fulfilled, raising finance if required, and landlord’s acceptance of the buyer etc.
The balance of the purchase price is then paid into trust just prior to the date of takeover of the business so that on that date, stocktaking is completed, the Seller hands over the keys of the business to the Buyer and the Broker pays the Seller his purchase price less their commission and everybody is happy.
I hope this has given you a basic review of how the ideal sale should happen under the guidance of a qualified broker and I hope you will consider giving us the opportunity of assisting in the sale of your business.