How to sell a business for the right price

When selling a business, the big money is in the preparation not the actual transaction, says Craig West, chief executive of Succession Plus and executive chairman of the SME Association of Australia.

He believes owners should start preparing for a sale, and ideally engage a professional, 12 to 18 months ahead of going to market. An adviser can help a seller secure the maximum price by developing and overseeing an exit strategy that involves de-risking the business, protecting value, implementing changes, securing future income and locking in key staff.

Accountant Andrew Kedwell, principal of Andrew Kedwell & Co, who typically acts for buyers, says sale negotiations are fragile and can fall apart over minor issues such as who will draw up contracts.

To appeal to buyers and increase the chances of a smooth and successful sale, business owners need to make the information-gathering and due-diligence process as easy as possible, he says.

Savvy sellers make it easy for potential buyers to gain a solid understanding of a business by providing a buyer’s kit which could include general industry and business information, customer demographics, and a rough contract for sale, he says.

Bringing in an outside party can help with the preparation of this and the entire sale process. (While successful entrepreneurs are extremely knowledgeable and skilled in their respective fields, they typically don’t have the experience and know-how to negotiate and manage a business sale.)

 

Don’t let emotion get in the way

They’re also “emotionally connected” to the business, which is often a detractor during the sale process, West says.

“Selling a business is emotional because it commonly represents a family’s largest financial asset and a lifetime of hard work. It’s far more emotional than selling a house.

“In my experience, where there’s a lot of emotion involved, people get hung up on price and they don’t pay enough attention to getting the terms right, which can be more important. A seller can achieve a significantly higher price, and better terms, by getting a professional involved.”

It’s a big market

The sale and transfer of family-owned businesses over the next 10 to 15 years will see roughly $3.5 trillion exchange hands, according to research by Family Business Australia.

Family businesses account for around 70 per cent of all businesses in Australia and 81 per cent of owners intend to retire in the next 10 years.

While 40 per cent of owners plan to pass the business on to family members, the majority intend to sell. Of those who plan to pass their business on, 61 per cent would seriously consider selling if approached, according to Family Business Australia.

According to West, one of the largest concerns of baby-boomer business owners is whether they’ll be able to sell their business for a fair price while providing for their employees.

“The market has changed considerably since the global financial crisis. There’s more price volatility and the banks have tightened their lending criteria, which means buyers are fussier and sellers need to be better prepared,” he says.

“They can’t sit back and wait for a big cheque. Effective succession planning requires careful and early planning, preferably with the help of an experienced adviser.”

The final step

A key step in this preparation, Kedwell believes, is offering an information pack to potential buyers, so as many of their questions can be answered at once.

Having said that, sellers must protect themselves by only sharing critical information with serious buyers following execution of confidentiality undertakings, he advises.

“It’s a good idea to have a general information pack to give to potential buyers, more detailed information can be given to serious buyers during the sale process and following execution of confidentiality undertakings because you don’t want to give sensitive information to strangers who may end up being competitors,” Kedwell says.

“Similarly, it’s really helpful to have a draft contract of sale ready for potential buyers to review. It allows sellers to prepare the document according to their requirements, and it can be amended down the track.”

 

What to do when selling your business

• Keep your focus on getting your business ready for sale, not the sale itself.
• Engage an adviser 12 to 18 months before you want to sell.
• Devise an exit strategy with your professional advisor(s).
• At sale, focus on the terms and meeting your objectives, leave emotion at the door.

 

To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.