As the Greek philosopher Heraclitus put it “The only constant in life is change”. Our environment, health, relationships and stage in life all change, and that’s how it is with businesses too.
And as we have all witnessed how a pandemic can come along and turn things upside down within a few months.
In New Zealand we have a large number of small businesses. Some of these people will be wanting to cash out, change their lifestyle or retire from business now, or in the next few years. Some owners will be cash strapped, some will be tired and not able to adapt, and others will just want to retire or look at a change in direction.
As business owners seek to exit their businesses, a smaller, and in some cases younger and more selective group of buyers will be looking to invest.
“Unfortunately, an over-supply of struggling or average businesses is likely to result in some failing to sell. Being prepared in advance is your best way to sell your business and secure your financial future” says Richard O’Brien from business for sale NZ website nzbizbuysell.
If you are considering cashing up and selling a business, there are some important elements that need to be added into your business plan to help you sell and achieve your best outcome.
Ideally you will have a business exit strategy. If you are unsure about how to prepare a business exit plan, your best strategy is to engage professional help. Having an exit strategy in place as part of your business plan is an investment in your business – this way your business’s value is maximised. There are also short term benefits in streamlining your business, generating more sales and cash flow, and lessening reliance on you. This allows you to be “business sale ready” at any time for whatever reason. Keep in mind that one of the major goals in business is to increase the value and saleability of your business. This in turn gives you a more valuable asset.
If this isn’t possible, then focus on the things that add the most value; business buyers will be on the lookout for good cash flow, sound systems and processes, and a business with a future. It may be that you need to focus on a different market, reposition your business, or change your business model. All this will help your business, and help you get a better sale
Planning is important – you must prioritise preparing your business for sale. Increase desirability by identifying what potential buyers want, and addressing any areas that leak value, and are likely to be used to negotiate the price down. Ensure all procedures and systems are documented. Improve cash flow by boosting your sales and minimising expenses. Go through your financial records and ensure they reflect a healthy turnover and profit margin. Ideally there will be an established client base with opportunity for diversification and future growth.
Make sure the business can operate independently of you. Client dependence on the current owner diminishes the confidence of potential buyers, as clients or customers may not remain loyal once you have departed.
It can take time to sell a business. Download or make a Business Sellers’ Checklist for what you need included in your business plan, so you get your best price and a sale.
Always remember to be upfront, honest and realistic with buyers, as cover-ups often lead to distrust and the buyer bailing.