Managing the Sale of Your Business

Do you want to sell your business?  Here are some words of advice - before you start planning your one-way ticket to the Pacific Islands, take the time, and spend the money, to prepare your business for sale.  Otherwise, you might be leaving precious dollars on the negotiation table.  Here are some tips to help you avoid business sale pitfalls, disappointment and lost money.  
Start Now!
  • Not planning in advance may mean you miss your window of opportunity.  It takes an average of three to four months to sell a small business.  Therefore, long-term planning is the key to any successful business sale.  It is about being in control of the evolution of your business in order to maximise value and streamline the sale process.  You just never know when that perfect buyer may walk through the door.

Differentiate your business 
  • You have probably heard the news about all the baby boomer business owners nearing retirement, which means the market will become overcrowded with businesses for sale in the next five years.  How can you differentiate your business from the numerous others on the market?  You should investigate your business now in order to strengthen any weaknesses and build on existing strengths after identifying where the key value in your business lies.  

Get your books in order
  • The first thing a purchaser will look for when buying a business is the financial records.  Buyers evaluating your business will generally require at least three years’ worth of financial information.  This should include the financial statements, management accounts, tax returns, GST returns, list of plant and equipment, bank statements, historical budgets, and the depreciation schedule.  Having these readily available will make the “due diligence” easier for your buyer.

Lease of your business premises
  • Assuming your existing premises are in the best location for the business, you should ensure you have a suitably long term of lease together with sufficient rights of renewal.  A buyer may be put off if there are no rights to renew the lease with only one year left to run on the term.  If your existing premises are not in the best location, then look at making sure it is.  Landlords have also been known to be an obstacle in deals.  For this reason, you should notify your landlord in advance of your decision to put the business on the market.  If necessary, you should take this opportunity to negotiate any restrictions on the assignability of the lease to a buyer.  Have a copy of your lease documentation, including all renewal and rent review documents available ready to provide to a prospective buyer.

Supplier/Customer relationships
  • You should organise your legal paperwork.  Many small business owners conduct business on an informal, or handshake, basis with their suppliers and customers.  If these informal agreements are key to your business success, then you need to have them recorded in writing, and make sure they can be transferred to a buyer.  Formal agreements will provide the buyer with peace of mind that these key relationships will continue past a sale.

Business documents
  • Review your internal documentation, including any terms of trade and your business policies and procedures.  These should be in place, and in practice.  When it is time to put your business on the market, make sure you have these readily available, current and in order.  An orderly operation is more attractive to a prospective buyer than a chaotic one.

Management
  • Depending on your business, you should consider having a management team in place who can run the business with limited supervision by you.  A buyer will feel more comfortable taking over the business if a strong management team exists.  If you are absolutely vital to your business, start by considering recruiting, or training, a strong management team or individual who can carry on without you after the sale.  A buyer’s primary concern is that the business will be able to operate successfully after you have gone. 
    
Assemble your advisory team
  • You will need to assemble a team of advisors with the necessary knowledge and skills to successfully assist you in the sale process.  Initially you will need to find a reliable business broker.  It is a full time job to try and market the business yourself.  You don’t want to let your business performance decline because you’re spending all your time focused on the sale of your business.  This will only result in any offers being lower than what they should.  Your team will later include your lawyer, accountant and other professionals (eg your banker, valuer, insurance agent, and financial planner).        
Following these tips, and any other advice provided by your team of advisors, will ensure you are well prepared, and most importantly, you will have a stronger chance of realising the true value of your business.  




 Contact: Katrina Hulsebosch - Associate
Katrina has so much to share with you drawing on a commercial background.  Katrina joined Harris Tate in 2009 as an Associate and advises clients on all business matters, including sales and purchases.

Katrina’s expertise also extends to asset protection, business structures, commercial property, liquidations and receivership, trusts and immigration.

Harris Tate would be pleased to assist you with any issues raised or answer any questions in relation to this.  Please feel free to contact Katrina Hulsebosch at any time on 928 0881 or by email katrina@harristate.co.nz


 

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