Sell! Sell! Sell! But How?
Has the past year trying to live with COVID-19 floating around had you wanting to fly away?
Like Lenny Kravitz preached all those years ago.
Well things aren’t that simple if you’re a business owner – you’ll need to sell first!
We’re often asked what’s involved in selling a business. Sounds simple right….? However the outcomes will vary greatly depending on two key components at play:
Have you planned the positioning of your business for sale?
How will it be structured to achieve the most optimal outcome?
Both elements are equally important and need to be carefully considered.
Positioning
Positioning a business for sale is all about ensuring that the sale completes and at maximum value.
It’s no secret businesses tend to sell based on a multiple of profit however, what sets the multiple? How is the profit determined? And what’s included and not included in the sale price?
Considering (and planning towards) how a business is positioned for sale ensures a few key things:
it ensures there are limited hurdles or risks within the business that may otherwise limit the multiple (and sale price!) achieved
it identifies the competitive position of the business within its market segment to maximise the multiple/sale price
it ensures that operating performance is primed to put the best foot forward on profit, and
it identifies what is in and out of any sale so that consideration can be given to trimming up excess stock; plant and other working capital that a buyer won’t pay extra for!
Positioning is also importantly about the timing to go to market and approach to obtain competitive tension for an optimal sale outcome.
Structuring
Structuring the transaction covers things such as understanding the businesses value, which as outlined above, goes hand in hand with the positioning piece; the terms and conditions of sale and contracts, and ensuring the transaction structure is as tax effective as possible.
Structuring will ensure you secure the most efficient and effective outcome from any sale. Minimising the hassle and maximising the cash.
Positioning is about adequate planning to maximise price and the probability of a sale occurring, whereas structuring is about optimising the best outcome from the transaction. A lot of business owners make the mistake of spending most of their energy on the structuring of the transaction. Whilst this is important, it only becomes relevant if the sale is completed and an optimal sale price achieved. For most, the sale of a business will be a once in a lifetime experience, so positioning is key!
In our experience to successfully complete the sale, business owners need an objective assessment of how the business compares in its market, its competitive position, and what, if any, impediments to sale exist – all the critical items a buyer will look at and look for when they assess your business.
Most buyers believe that we are currently in a buyer’s market and will try to drive down price expectations. Whether or not you are in a buyer’s market depends on your industry segment but regardless of this, you are in a competitive market. Buyers may be comparing your business with similar businesses but also opportunities in other industry segments. Securing a sale at the best possible price is about having your business positioned for sale, ‘sale ready’. As they say all good things take time, this process is no different, get in touch with us early if you are contemplating the sale of your business.
Stay safe. Shake tax, not hands!
Get in touch with m+h Private business specialists today on +61 3036 7174 if you need support for you and your business.
As always, the above is general in nature, and the details may change, please discuss with your trusted advisor.