How to Sell A Business & Realise Maximum Value from your Sale
There are many ways for business owners to transition out of their businesses. Although most business owners assume they CAN and SHOULD make a clean break, that is not easily achieved and it may present problems for everyone. When business owners decide to sell and retire, they don’t necessarily want to stop working instantly and completely..
Options for Selling Your Business
When selling a business it’s important to understand who the buyer will be. Business owners who want to maximize their outcome when selling a business need to understand the motivations of prospective buyers and the dynamics of the markets in which they operate.
We have divided prospective buyers into 4 categories, including:
- Buy a job buyers & Private investors
- Private corporations
- Private equity funds
- Public companies.
#1 Buy a Job & Private Investors
In this video, we discuss buy a job buyers and private investors.
#2 Private Corporations
In this video, we discuss buyers in medium and large private corporations.
These private corporations are part of the Business to Business (B2B) market. This market usually consists of smaller industry players being progressively acquired by larger industry players.
#3 Private Equity Funds
Understanding Private Equity Funds’ investment criteria is essential to achieving a win-win outcome when selling a business to these investor groups.
Private Equity Funds usually have specific investment criteria.
Understanding Private Equity Funds’ investment criteria when making acquisitions is essential to achieving a win-win outcome when selling to these investor groups.
We outline their criteria in this video.
#4 Publicly Listed Companies
Publicly Listed Companies get extra benefits from acquisitions. Understanding this can unlock great outcomes when selling your business.
Publicly listed companies operate with a different set of business dynamics to private companies. Understanding their motivations is essential to optimizing your outcome when selling a business.
Transitioning out of the business
There are many ways for business owners to transition out of their businesses.
Although most business owners assume they CAN and SHOULD make a clean break, that is not easily achieved and it may present problems for everyone.
When business owners decide to sell and retire, they don’t necessarily want to stop working instantly and completely, and it may not be good for them to either.
In the video below, M&A advisor Tony Brown explores a really good way for owners to transition out of their businesses to achieve the best possible outcome for themselves, the new owners, the employees and for the business itself.
Selling your business to your children
Many owners of family businesses expect to sell or transition their business to their children on retirement.
If this sounds like you, then you may be surprised to hear that while many owners would like to sell to their children, in reality only about 20% will be passed on to their next generation.
In this video, we’ll cover the pros and cons of selling to your children.
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Preparing Your Business for Sale
How Long Should it Take To Sell Your Business?
Business owners usually want to know how long the sale process may take.
To explain how long you should allow to sell your business, the process is broken down into steps. These steps and the timeframe are explained in detail in this video.
Here are the key steps that explain how long it should take to sell a business.
- Sale Preparation
- Document Preparation
- Marketing
- Offers Received / Negotiations / Completion
In this video we explain how long it should take to sell a business.
How to Retain Key Employees During a Business Sale
Losing key staff can not only cripple a business but destroy your chances of selling.
When selling a business, consider that the sale process can destabilize your team. If not handled well, this can lead to losing key team members.
Fear of this happening can paralyse a business owner from taking any action towards selling, rendering the owner a prisoner in their own business too scared to sell in case it triggers an exodus of customers and staff.
Fortunately, there are a few simple strategies that can not only reduce the risk, but increase the overall value for any buyer.
In this video, we’ll run through HOW to avoid this by not only retaining your key staff during a business sale but getting their help in the process.
When to Tell Employees You are Selling and How to Do it?
One of the first things owners worry about after deciding to sell their business is when (and how) to tell employees. How this is handled can dramatically affect the outcome for everyone…
Getting it right can set up a smooth process and great outcome, but getting it wrong may not only derail the sale process, but also the business!
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How to Value a Business
Valuing a Big Business - Greater than $1 Million
Everyone who sells their business wants to know how it’s valued. Here we explain valuing $1M+ businesses & include a free business valuation calculator.
Click here to download the Business Valuation Calculator.
A surprising number of business owners who have worked in their businesses and owned them for many years, even decades, don’t know how businesses are valued, let alone how much their business is worth and how to optimise their overall outcome in the sale.
In this video, we explain the valuation principles most buyers use for $1M+ businesses and show examples of works in practice.
Valuing a Small Business - less than $1 Million
The majority of businesses are valued at less than $1M, here we explain valuing a small business…
The vast majority of businesses are worth less than $1M. In fact, 95% of all businesses are in this category, typically they employ fewer than 10 people and are affordable by most aspiring individual business owners.
The key to knowing how these businesses are valued lies in what those aspiring buyers see in the business. Usually, they expect to work in the business and earn both the business profit and owner’s wages. We call this the buy a job market.
In this video, we explain valuing a small business in this market.
How to Select the Right Profit Measure
Business owners preparing to sell often discover profit measures for the first time, even though they are critical when selling a business.
There are several terms relating to profit measures, including Net Profit Before Tax, Net Profit After Tax, Net Profit to Proprietors, EBIT and EBITDA.
In this video, we will explain what these terms mean and draw distinctions between the various forms of Profit used when valuing a business.
How to Maximise your Business Value by Adjusting Depreciation
The lower the real depreciation, the higher the profit and the higher the value, maximizing your business value.
Actual depreciation is usually higher than the real depreciation applicable to business fixed assets. Replacing actual depreciation with a lower provision for capital replacement usually increases the true profit and therefore your business value.
In this video we explain how adjusting for real depreciation can lead to maximizing your business value.
What is Working Capital & Why Does it Matter?
What is working capital & why does it matter?
There is a lot of confusion about the treatment of working capital when selling a business.
Working capital features in business valuations, sale price allocation and sale adjustment calculations, to name just a few.
Most business owners and even some advisors don’t understand how working capital can impact on the goodwill of a business and how it is accounted for in the context of a business sale. The consequences of not knowing can be dramatic, with owners giving away substantial value without even realizing it.
We have created several videos on this topic with the first one below
Accounting for Working Capital During a Sale
Here is an explanation of how and why you should be accounting for working capital during a sale process.
Optimising Your Working Capital for Sale
We explain how to optimize working capital to maximize the outcome during a business sale. The aim being to clear up any misconceptions and explain how optimizing working capital can benefit the exiting owner.
How to Handle Declining Profits During a Sale
It is surprisingly common for businesses to perform poorly during a sale process period.
What can you do if during the sale process the current year isn’t going so well?
In this video, we’ll explain ways to help overcome this very inconvenient issue so you can continue with your sale process without having to abandon it until the next upturn.
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Choosing Business Advisors
If you are selling your business after many years of working in and on it, it makes sense to choose the right advisor/broker by taking a few simple steps:
1. Ask your trusted business advisor
This normally means your accountant. They are usually dealing with M&A advisory firms in the course of their careers advising their clients. If they don’t know a reputable M&A advisory firm, they can easily tap into their business networks to find one or more.
Almost all of our clients are referred by their accountant, banker, lawyer or a trusted colleague.
2. Contact the firm and talk to an advisor
Ask them to send their information through explaining what size and type of businesses they sell and how they do it.
3. Look for answers to these key questions:
- Does the firm have a record of successful transactions of comparable size?
- Are the key advisors suitably qualified and experienced?
- Will the advisor personally oversee the project?
- Does the firm understand, respect and manage client confidentiality?
- Does the firm hold the appropriate licences?
- How does the firm source target purchasers?
- Will the firm professionally present the business opportunity?
- How well does the firm communicate with clients?
- How well does the firm cooperate with other professional advisors?
- Will the firm provide an indicative valuation before the client commits?
- Does the firm manage the full process to completion?
4. Understand your target market
Bearing in mind that 95% of businesses have fewer than 10 employees and only 5% are likely to be $M+ businesses, you need to choose a firm that handles either the 95% or the 5%, depending on where your own business sits. This is very important as they are marketed in very different ways.
We’ve created several videos that cover some other topics relating to choosing an advisor.
Should You Go Exclusive and Why?
Why do most M&A advisory firms require exclusive engagement agreements to sell your business? What are the differences over a non-exclusive engagement? And, as a seller, should you agree to it?
These questions are often asked by business owners, and it’s no surprise… The decision must be made early on in the process, but is often critical to a successful outcome.
Choosing a Lawyer
The sale of a business is one of the most important events in a business owner’s life.
It must be handled properly and requires a strong team of accountant, M&A advisor and lawyer.
The choice of lawyer can make or break the deal, and can cost a lot of extra money if the deal is bungled.
In this video, we’ll set out some key criteria lawyers should meet before earning the privilege of acting for you on your big transaction.
Having the right business sale advisor manage the sale of your business is critical. Here we outline the steps on how the best advisors do it…
Here is a link to an article outlining the steps M&A advisors should take to ensure an optimal outcome for their clients.
No matter how good the business and how well prepared the owner is, having the wrong people running your process will affect the outcome.
In this video we’ll run through steps the best business sale advisors take to ensure a smooth process and optimal outcome for their client.
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Maximising Value
There are a number of things to consider when maximising the value of your business sale
How to Increase Business Sale Value With Performance Based Earnouts
Requiring all your money up front doesn’t always get you the best overall outcome when selling your business. To maximize the outcome, it often helps to agree to a performance based earnout.
Many business sale transactions are structured with earnout provisions, particularly in the mid-size business market. There are many reasons why building in an earnout structure might be mutually beneficial.
In this video we’ll explain what an earnout is and run through the 5 main benefits of having an earnout structure as well as 5 potential downsides you should consider.
How to Maximise the Sale Price & Retain Part Ownership
Retaining equity in your business can benefit everyone.
In this video we’ll show how owners can easily get MORE when selling their businesses and all while increasing value and de-risking the acquisition for buyers.
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Marketing Your Business
As you would expect from specialists in medium to large business divestments and acquisitions, Divest Merge Acquire has developed innovative, flexible, creative and broad-based marketing strategies. We combine the resources of our extensive corporate database with the skills and experience of our team.
Our database is the primary source of prospective purchasers. The database includes 190,000+ entries, comprising organisations with 10+ employees, private equity firms, accountants, lawyers, bankers, wealth managers, as well as corporate and high net worth local and international investors. This allows us to readily identify and target prospective purchasers. It is understood to be one of the best sources of business intelligence available.
Here is a link to an article which further discusses marketing strategies.
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After the Sale
A client and friend recently said “You prepared me well for the sale and what would be involved, but I wasn’t prepared for what came afterwards.” You are not alone! This article is our way of helping others. People don’t realise how integrated their business and lives have become, how it has shaped their identity and place in society, until they step out of the role that has become them. “Fish discover water last.”
A recent article in the AFR Magazine (called 2nd Act) highlighted the need to have made plans for after your business has been sold. Some excerpts:
“I felt like I had sold my baby…and that my identity…had gone. I wasn’t sure who I was any more…”
“What on earth am I going to do next?”
“It’s an exciting – not frightening – time, learning how to do nothing again.”
“I’ve been on the hamster wheel for so long, it feels like I’m in recovery after a bad accident. What I want now is a simple existence, where the days do drift away.”
“..suffering limelight deprivation, missing being in the media spotlight and at the centre of attention.”
Then some advice from those who have been there:
“The key with all businesses, especially if they bear your own name, is to make sure you have a business entity that is separate from yours…so it is not you that is being sold, but just your business.”
“For many families, selling or losing a family business they have inherited is a huge issue, mainly because their identities have been wrapped up with being in that family business since they were born.”
“….the key to successfully parting company with your company…is to be taking time – a decent break to get through the trauma, disengage from the old and conceive new possibilities.”
“take a few months off to put time between it all.”
“The most important thing is to give myself time to find my feet again; to work out the point of it all.”
“The greatest luxury in life is being able to stop whatever you are doing whenever you choose.”
“You can always count how much money you have, but you can never count how much time you have left. Having time is the most precious thing of all.”
Most of our clients, once on the other side, have so much more going on in their lives that they wonder how they ever had time for work!
Our best advice to anyone lucky enough to have both the resources and time available is to make some contribution goals.
The most satisfying achievement of all is in being a contributor, making a big contribution to society; The reward is referred to as “the magnificent pay-off”.
Focus on what you can give. So, how about making the world a safer place. That should keep you going for some time.
After all, “It’s better to burn out than rust out!”.
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We’ve been helping business owners realise the most from their business sale since 1999. If you are thinking about selling your business in the near future, please feel free to Contact Us to have a free no obligation chat.
