Selling your business? When it’s time to sell there are 4 key components to consider…

Selling your business?  When it’s time to sell there are 4 key components to consider…

Selling your business? Most of us get into business after first working for someone else. Either we were poor employees, or we thought we could do it better.

Starting the business

So we did what was necessary, set up an office, bought a vehicle, some tools, or whatever we needed, got a logo, some business cards, a Facebook page, and probably a website.

Then we went out to find some clients. 

We either got busy – or humbly recognised defeat and found another job!

Building the business

For those of us who succeeded and found clients, invariably we realised that we couldn’t do it on our own and needed to hire people to help us.

So now we have joined the ranks of the “new poor” – employers who pay themselves last. After the rent, the wages, the GST, the SGL, and all the other fixed and variable costs businesses incur.

At the onset, our dreams were to have four weeks of annual leave, to take an afternoon off every week, and to let the staff do the work.

Yet what happened was we found ourselves working longer hours than the staff, taking less leave, and often earning less. 

This continues for several years, long hours, stress, and financial pressure. Not to mention the hidden costs of either lack of, or breakdowns in our personal relationships. You start hearing lines like, “You promised me it would get better” or “I didn’t sign up for this!”

You console yourself with the rationale that you’re building a saleable asset, but are you?

Selling a business today is more difficult than it has ever been. It can take years to sell a business. And most business owners wait until they’re too old or until their interest in the business declines and it starts to go downhill.

Business brokers know the signals only too well. They commonly hear phrases like, “I just want to get out” or “I’ve had enough”.

Most small businesses rely way too heavily on the owner/s. Take them out of the business and there isn’t a business. The huge danger you face, and despite authors such as Michael Gerber and thousands of business coaches telling you to make the business independent of you, you never reached the point of working on, not in.

Some accountants will tell you that there is some magical multiplier that you can apply to your GP to calculate the sale price. As an example, say your GP is $100,000 after wages and taxes; some accountants will tell you it’s worth 3 times the GP, making the asking price $300,000 plus stock at hand.

Let me ask you this: would YOU spend $350,000 only to see an ROI after 4 years? And especially if the purchase must be financed. Very few people have $350,000 just lying around. Try borrowing $350,000 today without having substantial asset backing.

Probably not, and neither would most people. Especially if you, the proprietor, have been working 50+ hours a week to keep it alive.

Preparing the business for sale

Your business is only worth what someone will pay for it. The price is a ratio of the likelihood of the business continuing to make the same profits without your involvement as it did with your involvement.

Even if you only worked one day a week and the staff looked after it for you, the likelihood of a quick sale is remote.

The time to start selling your business is two years before you list it for sale. Here are the four things you must focus on to prepare for the sale.

  • Locational security. Unless the business is totally portable, or unless the premises are a part of the sale, you are at risk as the landlord may well change the deal on the incoming owner. 
  • Correct financial structure. As I mentioned, the selling price is based on profits so if you’re reporting losses then there’s nothing of value to be sold! The time to talk with your accountant and legal advisors prior to listing for sale is not a month before, it’s at least two years before.
  • Documented business systems. An operations manual so detailed and comprehensive that someone coming in fresh can read it and understand what to do on a daily basis. This is why top-tier franchises are so popular. Everything is detailed to the point where school kids can operate it for you.
  • A proven method of generating new customers. Nothing will persuade a buyer to buy your business if the sole inquiry source is your personal network and reputation. 

Don’t just take my word for this. These four points come to me via a very prominent and successful business broker. 

And of the four, which do you think he rates as being the most important?

A proven method of generating new customers.

This is where we come in.

Our business is focused on your sales pipeline; attracting the right customers to your website and making sure your website converts the visit into an inquiry. Then helping you refine the sales conversation to maximise the likelihood of that inquiry becoming a customer.

For more information about how we can help you, please call 1300 884 757 or visit our website where you can lodge an inquiry or book a call with us directly.