What a buyer usually wants to know is how much is your business worth without you in it. Starting with the “end in mind” is not something most of us do. Getting legal tidy up work finished well before the business is for sale will pay off in the speed of your sale and the price you achieve.
Have long key contracts
Selling with four years left on a lease is not attractive if those premises are well known to customers. Clarify with your landlord what their intentions are so you can confirm this with the buyer. The same goes for all other fixed term contracts like franchise, licenses, rights to use property and key contracts.
How is the sale price made up?
The price you get is for actual things owned by the business like stock, equipment and vehicles and everything thing else like goodwill, key supply contracts software, trade and domain names. Are goods sold at book value or market value? Is the stock current? The value of goodwill is the sustainable earnings of the business without you.
Can you confirm that key employees will stay on after you leave? If your business has a key or exclusive supplier is that contract in writing? Have three years of financial statements ready for serious buyers.
How much will your business sell for?
Are your customers repeat and loyal or are you a small fish up against the buying power of the “big boys”? Are you in a niche, growing or dying market? Does the owner have to work in the business or will it suit an investor who can put in a manager?
Your accountant can work out the sustainable earnings of a business. A business broker or valuer knows the multiple of earnings paid for different businesses and the state of the market. Find out what the market is actually paying.
New business owners need you to answer the question “the ideal customer for this business is…..”. Most businesses on the market will never achieve their full potential.Their owners are ‘dreaming’ about how much they will be paid for their business. Giving buyers an attractive information memorandum that answers the question “the price I am asking should be paid because…” will allow you to get to the potential buyers quickly.
When you are ready to sell your business give our business law team a call to help you get the best price for your business.
Our thanks to Tony Savage for writing this article