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Accountant Services Hastings

Selling a Business

Did you know that the average age of business owners in New Zealand is estimated at 58 years? Unless they’re going to work until they die (thanks BNZ great commercial!) this means there’s going to be huge numbers of businesses coming up for sale in the next 10 years or so. If you’re thinking of selling you’re going to be one of many so you’ll need to make sure you prepare properly well before you’re planning to sell. These are a few of the things you should be doing before you sell:

Get some good advice beforehand. Selling a business successfully can be tricky and stressful and difficult to face on your own so you need to get a good team in support, including a good accountant with the right experience, a great commercial lawyer and possibly an experienced business broker. Yes they’ll cost money but they’ll save you money by protecting your interests and not let you be bullied or misled by the buyer or their advisers. Unlike you, they are involved in selling businesses regularly! 

Pick the right time to sell. There are two main factors to take into account, economic (local or national) conditions and the state of health of your business. It’s obvious but there’s very little interest in business in recessions. As regards the state of health of your business, it’s the future a prospective purchaser is interested in not the past, which means your business needs to be in growth phase or healthy maturity, not a fledgling still in the nest or on the way down. Are your sales increasing or decreasing?  How is your gross profit margin tracking? Have you paid lots of tax recently?

Get your house in order. If you want to get a good price for your business (which, after all, should be a very valuable asset) you need to spruce it up a bit and show your best side. Are your business premises modern and smart or old and tired? Have you reviewed your product lines and eliminated any duffers and eliminated any unnecessary business and semi-private expenditure? Stopped taking cash out of the till or doing “cashies”? Updated the look and feel of your website and Social Media? Weeded your database and poor paying customers? Faced any employee issues head-on and made sure all employment agreements are signed? The potential list is endless!

Come up with a realistic price. You’re heading for disappointment if you put your business on the market at an unrealistic price and you’ll be wasting your own time and that of potential buyers too. Arriving at the correct price is not easy as it depends on a whole range of factors like the current economic climate, the nature of the trade, where you’re located, fashion, your profits and level of sales, the product life cycle, trends in technology or how much money the buyer has. Speak to a good accountant or an experienced business broker (not a real estate agent who couldn’t sell any houses!) and get some actual business sales data which is available for most lines of business for a small fee.

Get everything ready beforehand. Unless your business is tiny a prospective buyer and their advisers will want to see a huge amount of data and information so you need to get everything ready before going on sale. In addition, you need to organise a Confidentiality Agreement and get interested parties to sign this before you release any information. The next step is a Business Sale Information Memorandum (which includes limited, pre-selected data) which you can hand on after they’ve signed the Confidentiality Agreement. I could write a whole blog on the information you need to get ready to show prospective purchasers but if the buyer goes to the next stage beyond the Business Sale Information Memorandum you’re going to need things like previous financial accounts, copies of GST returns, leases and hire agreements, and contracts not counting heaps of information on employees, suppliers and customers. 

Unlike a house most people only sell a business once, so it’s vital to do everything possible not only to ensure that the sale process proceeds smoothly but also, that you maximise the sale proceeds of your business. Remember the 7 P’s rule we used in my Territorial Army days, proper preparation and planning prevents pretty poor performance!

If you need help selling your business call Nick today on 021 225 6425 or email.