How do I prepare to sell my business?

Dear Aunty B,

I am a long time reader so I hope you will answer my question. I am 55 and was planning to retire at 65, but my wife has health problems. The problems are not serious but life suddenly seems too short. So I am now going to retire by the end of this calendar year.

My children have shown no interest in the business so I have no ready successors and the business value is too great for any of my staff to consider a management buyout. So I will probably be selling the business. My problem is that this year’s profit and next year’s projected profit are not as high as other years because our business is at the tail end of the GFC and is still being affected.

My question is, how do I prepare for a sale? I have slogged at my business for years and want to get the maximum value. I am being advised to do everything I can to increase profit so I can sell out on an EBIT multiple. If I do that, I would need to cut back on our growth plans and change our strategy, which I am reluctant to do.

B,
NSW

Dear B,

We have only been around three years! But consider me flattered.

Look, your problem is this: you obviously need to sell the business as you have no obvious successor to buy it. That means you will need to sell it on the market. Unfortunately, most business owners are forced to sell due to external events. This means it is not an opportunistic sell but a necessity sell. And that also means you don’t have the time to prepare the business in order to get the maximum price.

Our columnist Tom McKaskill has written extensively about why you need time to prepare your business for sale. And he says to get the maximum price you need to take 18 months to two years.

And he doesn’t talk about just the usual guff such as ensure you have good documents, processes, systems, trained staff who will stay with the business, clearly identifiable IP and so on (all stuff you should have by the way.) McKaskill talks about getting five to 10 times what your business is worth today. And you don’t do that by sacrificing growth. The problem with the “increase profit at the expense of growth” is that you might actually end up with a smaller sales price. The assets and growth opportunities in your business plan could mean large revenue opportunities for potential buyers.

As McKaskill says: “The selling price of a business is determined by the value that can be extracted from it by the buyer and not what the historical accounting systems say.”

My advice to you is to read McKaskill’s stories on selling a business on SmartCompany. Then decide if you can spend longer on the sales process. As you say, you have worked so hard on the business it seems a shame not to work very hard on the sale and get the maximum value!

Good luck
Your Aunty B

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