Thing's to Consider when Selling your Business - Part 1

There are a number thing's to consider before selling your business. In this article we will discuss the following:

Price

Be wary of ?rules of thumb? of valuation, as homogeneity across similar businesses, rarely exists. All businesses are unique in their own way, due to location, management, staff, local demographics, just to mention a few factors.

You may be guided by your broker, your own personal research of similar businesses, or a professional adviser, to determine in what range the value of your business falls.

To support your asking price, your purchaser will be looking for reliable past financial reports to verify history as well as confidence building forecasts, to help him determine that this business will also be successful for him. Your records will be a great source of reliance by any potential purchase, so consider how best to present your records, particularly the following:

1. Financial Statements
2. Forecasts
3. Customer Lists
4. Debtors Aging
5. Suppliers
6. Asset Registers
7. Tax Returns (in some instances)

Unfortunately financial reports prepared to minimise tax, rarely attract high business sale prices. These reports have opposing goals, to that for selling a business, as accounting methods are used to maximise tax deductions by decreasing taxable profits.

Accordingly, if you want historical financial reports which will sell your business, you need to plan well in advance, so that these historical reports support the premise that yours is a healthy profitable business. You may need to forego some taxation benefits for a year or two, in the interests of obtaining the maximum selling price based on higher profits, which will compensate you for any lost income tax deductions.

Your accountant is in the best position to assist you with determining final asking price as well as preparing final supporting documentation together with reputable verification of your records.

Timing

The timing of your sale is likely to be crucially important, both in terms of the market in which you are selling and the ramifications on you personally, emotionally as well as financially.

In terms of your business being the most attractive to potential purchasers, the best time to sell is when sales earnings are trending upwards, in a growing market.

The implications of the timing of taxation ramifications and personal implications need to be weighed up carefully, before placing your business on the market. Determining when to sign the contract, when a successful negotiation has been reached, and when that contract should run its course to its end also needs to be considered and all implications assessed.