Business owners know how important planning for the future is. But when it comes to planning, there is one element that many business owners fail to include: how to make your business saleable. Simply turning a profit isn’t always enough – there are many ways to ensure that your business is saleable. If you want to find out how to make your business saleable, read on!
How to Make Your Business Saleable: Key Factors
The new financial year is a time when small business operators review their operations and future plans. For most family firms, the business is their major asset and its eventual sale is what they are relying on to fund their retirement. But selling a small business is not like selling a house. You cannot just list it on the market and sell within 4-6 weeks.
Michelle Wright, Principal Licensee of Complete Business Brokers, said it was important for owners to know that the average business sale took about 14 months – some much longer. She said owners should start thinking a few years in advance about what made their business valuable and how they would potentially exit. Ms Wright also said there were some key ongoing discussions business owners should be having with their accountants that could help make and keep their business in saleable condition.
If you want to know how to make your business saleable, take note:
- Stock: These values are commonly discussed at the end of each financial year, however, have you assessed ageing of your stock? Business buyers do not want to take on old stock. Typically, any stock over 12 months old is considered obsolete so it may be best to encourage clients to sell the older stock at reduced prices to ensure stock is rotating.
- Plant & Equipment Values: Potential sellers needed to realise that the sale value of their plant and equipment was not always the same as their tax depreciation schedules. When it came to selling a business, owners needed to be aware of the current secondhand values of plant and equipment. This is critical information required to be able to appraise a business value.
- Private Expenses: Business owners may be tempted to expense private items to reduce profits/tax, but this can be a real negative when it comes to business value. Business owners should be discouraged from trying to expense private items. It makes them vulnerable to a tax audit and is detrimental to the saleable value of the business.
- Business Structure: Does the existing business structure make an arms length purchase relatively easy? Or does some restructuring need to be considered?
- Key People/Relationships: Are there staff members and/or client/supplier relationships that are key to running your business? Can these be transferred as part of a sale process?
- Internal Systems: Are your accounting, stock control and other business systems up to date, efficient, modern and transferrable to new owners?
- Jobkeeper Payments: Some business owners could be holding off on considering a sale until the Jobkeeper payments finish. However, the typical sale process takes at least 14 months – way beyond when Jobkeeper is expected to finish. Therefore, there may still be an argument for starting the sale preparation or listing process.
Ms Wright said that Covid-19 was driving demand, with some people, who had lost their jobs in recent months, now looking to buy a business. For more information about Complete Business Brokers, go to www.completebusinessbrokers.com.au
How to Make Your Business Saleable: Additional Factors
In addition to the points Ms. Wright provided, there are other important factors to consider if you want to know how to make your business saleable.
How likely your business is to sell can depend largely on how much potential for growth buyers find when analysing your business. Your business is more likely to sell when there is potential to grow and scale. A business that does not provide the potential to grow or develop further offers little to buyers and can even raise red flags.
If your business has one major client that provides a large chunk of revenue, it can put investors and buyers off. This is because clients can be finicky and prefer to take their business elsewhere when you sell your business, especially if this client prefers dealing with you and does not have an interest in working with the new owners of your business. Multiple ‘big clients’, however, can become a major point of attraction for potential buyers, if they are able to be transferred in the sale of your business.
A business’ accounting system is imperative to its success. The accounting system you use can influence a buyer’s decision, as they may be less likely to purchase your business if your accounting system is poor or outdated. Good accounting practice also prevents you from losing financial records, which can also be a deciding factor for potential buyers.
While you manage your business and improve its salability, you should also try to manage your expectations. Often business owners overestimate the true value of their business and get certain values stuck in their mind, creating an expected sell price. If you have a figure in mind for the sell price of your business, you should first ensure that your business is worth it. Buyers look at the historical performance of your business, as well as how it stands at the time of sale, which means you need to properly manage your business’ affairs from the start to ensure no ‘dirty laundry’ is aired later. A healthy, well-managed business can perform better on the market, and you may have more realistic expectations when selling if you know exactly what your business is worth.