72% of Australian and New Zealand SMEs surveyed in William Buck’s Exit Smart Report 2023, expect to exit the business in the next 10 years. However, 64% of owners haven’t had their business valued recently.
We hear a lot of people say they would like to sell at some point, but don’t know where to start. The key is in the preparation of getting the business ready for sale. This is a process that can typically take years, not months, so if you are looking to sell in the foreseeable future, here are a few things you can do now to make sure you’re ready when the time is right.
- Develop an Exit / Succession Plan.
You’ll need to start thinking about your exit plan some years before you actually want to exit. This is the same for a succession plan if you intend to transition ownership to family or recruit a successor. Both the planning and the handover period can be several years, so this is something that needs to be kept in mind.
- Get a business valuation.
Think of the initial valuation as an action plan to work on improving value. There are a few methods used for valuing a business and your accountant will be able to provide more information on the different methods and factors you need to take into account. Note, that a valuation is not equal to the sale price and if you do receive a lower valuation than you hoped, you can spend time building value in the business.
- Understand the sales process
Whether you are selling the business assets or selling shares, you need to understand fully the process of selling that is likely to apply to your situation as they are different and have a different effect to the vendor. Further the sales price will be different for each of these sales types. NZ small businesses are mostly sold as asset sales but there may be situations where outright share sales are more appropriate. Succession will be transacted as a serious of share sales over time that sees the original owner selling down their shareholding until they finally sell the balance of shares and can retire.
- Assess your risks.
Including key person risk, and work on mitigating these. Key person risk is when you place all knowledge, skills and important relationships in the hands of one or a few staff members. If they leave, they take this knowledge with them leaving the business open to risk.
- Write a “how to” manual and make yourself redundant
Your business needs to survive without you. If you have employees, provide training they need to succeed. Record every process and make sure there are formal job descriptions for employees.
3 Things Every Vendor Should Know When Selling Your Business.
- Get your accounting sorted.
You’ll want to show 2-3 years of clean financial records. If there is something you can do to improve profitability, do it asap so it looks like a sustainable trend and not just a recent spike. Speak to your accountant so they’re aware of your plans and can start helping you with this side.
By going through each of these steps, you’re taking proactive measures to prepare your business for sale. These steps can time, so starting this process now should mean less prep work later on.
We’re here to help. We’ve supported many business owners through a sale process and have the knowledge that can help you too. If you’re thinking of selling your business, let’s talk.
