External – what do we need to prepare to attract the right buyer (who will pay more) and convince them of our value and finally make sure they sign the cheque?
Having bought or sold several businesses over the last 15 years, I’ve found that several factors stand out:
- Strategic buyer – For every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers – the most common example is complementary products and services. In strategic sales it is not about a multiple (financial sales of businesses are often based on a simple multiple of profit) – it is more likely the price will be factoring in future strategic value. For example, many sales that involve technology or IP assets (unique, well protected, hard or expensive to copy) and the buyer has the ability to leverage that acquisition, creating substantial value.
- Information memorandum (IM) document – It is amazing to see the number of businesses (otherwise quite valuable) whose owners are prepared to sell on the basis of a cheap, homemade flyer-style document. A well-prepared IM will be able to attract and convince the right buyer. It should also be designed with the buyer in mind and highlight the strategic opportunity for the buyer.
For every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers.
- Tax planning – Every exit has several different elements of taxation, nearly always CGT, often stamp duty and sometimes other taxes as well – inadequate planning in this area can cost you a large percentage of the sale price in taxation. This aspect should always involve a financial planner experienced in this area – use of SMSF strategies, for example, can add substantially to the financial outcome for the seller.
- Due diligence and documentation – Many transactions fall over at this point but this can actually be used to assist in improving the value of the business. If all of your documentation is complete, accurate and up-to-date and demonstrates a well-managed business it will support your value proposition, not detract from it.
- Negotiation – Being in a position to create some competitive tension (by attracting several of the right buyers) is a good start, but the conduct of the negotiations and discussions leading to the actual sale are a very important aspect and should not be underestimated. As a result of the GFC the terms of sale are now a major factor – many deals involve a vendor finance aspect, some require vendor participation for some time after sale and often involve warranties or guarantees (that may be linked to the final pricing) – getting these terms wrong can see quite a good deal turn very sour.
- Legal agreements – Often business owners are concerned that the legal agreements will scare off the buyer – this is very rarely the case. Far more importantly, the legal agreements need to be structured to protect you after the sale, particularly around the key issues of any warranties, assurances provided and also any event or finance included as part of the sale terms.
- Corporate advisors – You should not try to sell without the best advice. Well-represented businesses are generally taken far more seriously and are perceived to be far more valuable. A corporate advisor who has a reputation for selling good-quality businesses automatically positions your business in that category.
Importantly, postexit you also need assistance with asset-protection estate planning and ongoing investment planning – the change from business owner to self-funded retiree is substantial.
The correct implementation of the items outlined above will achieve two key outcomes – maximise the value of the business and successfully extract that value upon exit!
Craig West, CEO, Succession Plus