Selling and succession

Preparing your business for sale to get the best price

4 min read

It’s important to start planning the sale of your business early – some business owners start planning a number of years before the actual planned sale date. It’s like selling a house when you tend to paint, fix and select the right month to sell.

Selling a business is similar – where you should be looking in advance to improve profits, processes, and make the business as attractive as possible to a new buyer.

Give your business a makeover

Make sure your business has tidy financial records, optimal levels of staff and inventory, and tightened control over debtors. Fixed assets (like equipment and vehicles) should work well without needing to be replaced in the near future.

Don’t over commit

Potential buyers might feel locked into a direction they don’t want to take if you’ve invested in long term spending. Cut back to short term spending to reduce the financial burden on whoever acquires your business. Be realistic when providing for bad debt, old stock and depreciation amounts.

Increase your profit

Go all out to increase sales, follow up leads, call in favours and ask for referrals. Identify what costs you can remove to increase your net profit. Can you buy materials cheaper, switch suppliers of overheads (such as power or telecommunications), or be more efficient with processes so you don’t need as many staff or contractors? Whatever you do, double check you can implement without impacting on performance.

Restructure debt

Consider what debt you have and how this will look on your balance sheet. It could be useful to amend business loans, to repay them at a different rate. See the range of BNZ term loans and make sure you contact a BNZ business specialist to discuss what’s best.

Update signage and marketing material

Make a good first impression when buyers come to view your business. Your premises should be immaculate and orderly, with friendly staff and lively activity. New signage, repainting, and implementing a general clean desk policy will help.

Improve processes

Demonstrating how sharp your internal processes are will show buyers that your business is functioning efficiently. Implement ways you can collect your cash faster. It could be something as simple as using PayClip, a mobile device which allows you to collect card payments on the spot.

Make sure that your administration systems are as automated as possible. For example, using Xero for your online accounting, and EdgePayroll to process your payroll obligations.

Collect market research

Speak to your most valued customers concerning what they want improved and what they treasure most about your business. Use this information to enhance all aspects to your customers. Content customers are valuable assets.

Take action

Create an action plan for any weaknesses in your business that you intend to rectify. Outline the steps you’ll take, timeline you’ll follow, and the resources you’ll commit. Then, assign tasks to gain improvements before advertising your business for sale.

The buyer’s perspective

When preparing to sell your business, it’s a great idea to consider things from the buyer’s point of view. In other words, what would you look for if you were the buyer? One question a buyer might ask is your reason for selling. You should have an honest response that doesn’t suggest the need for urgency.

Buyers prefer low risk with high reward when they consider investing in small business. Ultimately, buyers will look for good cash flow and solid systems with the potential for further growth.

What do buyers want to know?

Buyers need accurate and complete information to make an informed decision on whether your business is suitable for them. You can help this process by understanding who your potential buyer is and what they may want to know about your business.

Questions that buyers may ask, and you should have documented answers for include:

  • What makes your business unique?
  • How profitable is your business in both good and bad times?
  • What contracts, leases, customer agreements and intellectual property do you own? When do they expire or require renewing?
  • Will you remain with the business in a temporary role to support a smooth transition?
  • What are the levels of stock and investment required in the foreseeable future?

It’s likely that potential buyers will want to view at least three years of financial statements, including income statements and balance sheets. They’ll be buying into your business’s future profitability so explain any differences between what the finances are showing now, and what they could be showing in the future.

Buyers will be aware that there’s a risk of customers leaving after you sell. You’ll need to reassure them that your customers are loyal to the business rather than to you.

Seek expert advice

When preparing to sell your business, talk to your lawyer. He or she can protect any trade secrets by writing up a confidentiality agreement that a potential buyer would sign, which will help safeguard your intellectual property.

An accountant can ensure your financial records are organised while also helping to accurately calculate the goodwill that’s been generated over time to forecast a possible price.

Hiring a broker will assist to smooth negotiations with prospective buyers, can help keep your identity confidential so suppliers and customers don’t get concerned, and will allow you to focus on running your business while they look for buyers.

Ask your experts to mention any weaknesses they see in your business. Do your own due diligence before offering your business for sale and address any problems.

Finally, keep your BNZ business specialist or partner informed to your intentions. They will have seen a number of businesses sell over time, and can help put in place any finance requirements you may need before you sell.