Maximising the Sale Price

Chilman Boats

If you could do something not only to make your business more readily saleable but worth $200,000 or $500,000 more, would you do it?

Selling a business is similar to a game of chess. Each move can potentially have a significant impact on the end result, each being a sequence of events and not in isolation of each other.

The following are suggestions to consider in improving your strategy which almost certainly will make a difference in real terms, particularly in price achieved and a reduced “hassle” factor.

The easiest sales made, almost without exception, are those that fulfil the following basic criteria:

  1. Clarity and stability of financial history – not too many unusual adjustments – the more explanations required, so contrast levels dimminish
  2. There is something in it for the next person ie. tangible potential for a Purchaser to impart their own “stamp” on the business.
  3. The relationship between hard assets and goodwill is not too much “out of kilter”.
  4. The return on funds (ROI) is considered reasonable (not necessarily cheap).
  5. The business doesn’t rely totally on the owner ie. there are systems and/or people in place to minimize the impact of changeover.
  6. The industry itself, is perceived to have a future.
  7. Passes the commercial “sniff” test ie. does it feel right?

Every business has its “ying and yang” aspects. To pretend otherwise (ie. no negatives) is misleading and simply renders believability and credibility as an impotent force. We encourage the negatives to be aired relatively early in the process in order to show the business as “real” and in order for the purchaser to ascertain issues that rightfully need to be addressed, not found out by accident some time later in the process which is almost guaranteed to smother a sale.

We know from past experience that significant advantages (ie. better price and less hassles) are achieved with a little early thought and planning. Apart from the above comments a few more issues to think about and act upon are as follows:

1. Timing

Simply know when you want to sell, what you want to achieve and plan accordingly.
2. Price

Assessing value is an art and a science. Most arguments for either a high or low value can be substantiated (depending on whose hat you are wearing). A sale will generally only take place if both parties are satisfied that they have a fair deal in place. In our experience, most successful sales simply reflect a fair return on total funds invested.
3. Plant & Equipment

Decide what stays and what goes (but make sure that all plant utilised in the business remains). Is value at Written Down Value or Current Market Value? - consider the tax implication - it's often prudent to obtain a written valuation.
4. Stock at Valuation

Sell or remove unsaleable stock. Do stock levels on the financial statements reflect actuals.
5. Creditors & Debtors

Are Creditors and Debtors managed properly and efficiently? What working capital is required?
6. Selling Only Part of a Business

Ensure separate Profit and Loss Statement and audit trails. Squeaky-clean is the name of the game.
7. Potential

A pre-requisite before purchasers will seriously consider (i.e. something in if for the next person). It definitely helps in the sale but generally doesn't increase price.
8. The Lease

Rent must be fair and the terms and conditions commercially acceptable. If not, the business simply won't sell. There are specialists in lease negotiations to help solve problems.
9. Staff

What are staff liabilities (i.e. long service leave, sick leave, annual and redundancy payments). Are key people likely to remain? Advise key staff of the sale or not? Are the right people in the right position?
10. Confidentiality

Often a real issue and can be dealt with using different strategies for different businesses.
11. Marketing

Ads don't bring in the bacon like they used to! Many strategies in the hunt for a purchaser can be tailored specifically to the business.
12. The Information Memorandum

A comprehensive (IM) makes it easier for a prospective purchasers their advisors to assess. A well proposed IM helps create an atmosphere of credibility. Significant thought and information is required to produce an accepted and professional document that is positive but not misleading.
13. Agencies & Supplies

Ensure clear arrangements are in place with key suppliers or agencies. What is their likely reaction to the introduction of a new purchaser?
14. Intellectual Property

Refine what makes the business tick, its competition and advantages to understand how that can be protected as best as possible.
15. Customers

Determine strategies to minimise customer leakage.
16. Other

Consider other issues such as ongoing assistance to the purchase, restraint of trade likelihoods, risk issues (i.e. misrepresentation and the minimisation of it) to name a few.

Yes there is a lot to consider but to maximize your objective these important issues need to be addressed as early in the process as possible.

Any astute buyer in today’s market will undertake due diligence. The easier the process is made, the greater the chance of a successful outcome.

Note: A more comprehensive article entitled “Strategic Winning Moves to Maximise the Sale Price of Your Business” is available on request.