Even if you don’t plan on selling your business anytime soon, we recommend building your business like you are going to sell.
“Begin with the end in mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”
This is one of Covey’s 7 habits of highly effective people.
We see many clients looking to purchase a business or sell their business. Often the issue is that the owner has not taken into consideration what might be needed if they were not to be in the business. The other issue we find when working with clients is that once the business has paid market value wages for the owner(s) and interest on the funds borrowed to finance the purchase there are no profits or cash remaining.
Below are five tips to increase your odds for a successful business sale:
- Strong cashflow & great profitability – the value of your business is generally determined by applying a multiple to maintainable earnings. For most small businesses this will be a multiple of between two and four times. So not only is profitability important in determining the value so too is minimising risk for the potential buyer. Look at ways to reduce risk by locking in key customers and suppliers, secure leases and paint a picture of sustained growth. Inconsistent numbers and trends can make a potential buyer nervous.
- Amazing people. Motivating and retaining your key staff is critical for the sale and value of your business. Do you have appropriate employment agreements in place and incentives? How can you encourage key staff to remain? Are you are paying your staff correctly? We have seen a few business contracts fall over recently as the current owners have arrangements with staff or contractors which are not 100% legal.
- Loyal customers & suppliers – generally it is better to have a diversified customer and supplier base. This reduces risk both for you in running the business but also for a potential buyer. If you do rely on a few key customers or suppliers ensure you have formal agreements in place. Check any existing agreements to ensure they are sale-friendly.
- Systems, Systems, Systems – systemised businesses are not only far simpler to run and far less stressful but they are also more valuable.
- A business that doesn’t rely on the owner – most small businesses rely heavily on a few key people. It’s important to implement a succession plan and empower and develop your team to run the business in the owner’s absence. Not only does this mean you can take more holidays, it demonstrates the business can be self-sustaining.
Thinking of selling your business? MJJ Accountants can assist with preparing Financial Statements for sale purposes, assist with the Due Diligence process and provide advice on how you can minimise the effects of capital gains tax and GST on the sale.
Are you thinking of buying a business? MJJ Accountants provide a Business Analysis & Appraisal service for the purpose of assisting you in evaluating if the purchase price is reasonable and whether the purchase will achieve your desired financial and personal goals and objectives.