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Top Tips for Business Buyers and Sellers
Buying or selling a business
is a time-consuming and often stressful activity. Vendors usually feel
they’ve got less from the sale than they wanted, while purchasers often
feel they’ve paid too much. About the best thing both parties can do is
to be realistic in their expectations and evaluations that are part of
the process.
Some businesses are in greater demand than others. This means they’ll
sell quickly and the vendor will receive a good price for the sale.
First we need to look at those things that make a business marketable;
not many businesses will have all these characteristics but the more a
business has the greater will be its appeal to prospective purchasers.
Characteristics of a Marketable Business
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It is well-established and
has a good trading history with at least three years of detailed
financial records including tax returns that are in agreement with
the books of the business.
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It is not completely dependent on the
skills of the owner nor disproportionately dependent on the specific relationships between
a very few vendors and/or customers.
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It can demonstrate growth
in revenues and increases in profitability over the past three
years.
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It is in a market that is
growing and provides opportunities for the business to grow further.
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Key personnel will remain
with the business after the sale.
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The owner can work
reasonable hours and no more than five days a week.
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Premises, fixtures,
fittings, plant and equipment are in good condition.
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The inventory (if
applicable) can be verified and accurately costed and all stock is
of reasonable age and is in saleable condition.
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Tenancy of the premises is
secure for at least three years and the cost to the business
reflects market levels or less.
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The location is suitable
to the operation of the business and will not be difficult for
employees to reach.
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The customer base is
diverse without over-reliance on just a few major customers.
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The vendor will provide
transition assistance and some finance if required.
Those are characteristics of
the business itself, but what can the vendor do to help ensure a
trouble-free sale process? Here’s what the vendor can do to make selling
a business easier:
Tips for Business Sellers
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Establish a realistic
expectation of the value of your business. It should be supported by
facts such as the selling prices of similar businesses and a
reasonable ROI for the purchaser.
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Keep the business going as
usual. Focusing on the sale and not the business will usually affect
both sales and the team’s morale.
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Consider using outside
expertise to gain advice and maintain confidentiality. There are
many things that you need to know that can only come from those who
have been involved in many business sales, including how to keep the
sale under wraps.
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Be sure your records are
in good shape. You need at least three years trading history and
supporting documentation including tax returns.
-
Pay attention to the
visual appeal of the premises and equipment. If the business has a
run-down appearance it will be quickly devalued by anyone
considering buying it.
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Be positive when talking
about your business with prospective purchasers. Be able to give
them a reason for selling that makes sense, and if they mention any
suggestions about improving the business be receptive.
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Anticipate what a buyer or
their agent might want to see in the way of documentation including
leases for equipment, licenses from local authorities, stock
purchase records and details of any intellectual property the
business owns.
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Be prepared to negotiate
on every aspect of the sale. Some purchasers might want you to stay
with the business for a period of time, some might want you to
finance a portion of the goodwill, and some might not want to
purchase all the equipment and fittings. Consider every element
carefully before accepting or rejecting it.
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If any information is
requested that you haven’t already prepared be sure to get it back
to the prospect as quickly as possible. Minimize delays; they can
often let someone else come up with a better offer for the
purchaser.
Step back and view everything
about the business from a purchaser’s perspective. Ask yourself
questions such as ‘would I want to do business here?’ and ‘just how good
are the future prospects of this business’? Be honest so you get the
answers you really need.
Tips for Business Buyers
The purchaser can do a lot to
facilitate the acquisition and be sure it’s the ‘right’ business they’re
buying:
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Don’t be unrealistic in
your expectations. Accept the fact that every business has faults
and you’re more likely to uncover them if you do a thorough job of
pre-purchase investigation.
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Talk personally with the
owner. This is the best way to put yourself in their shoes and gain
a picture of how you’d go if you were running the business. Ask any
questions you want to ask and don’t accept inadequate answers.
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Do your research into the
recent selling prices of similar businesses. Talk with those who
were involved and find out how their final valuation was achieved.
If real estate is involved get records of all sales in the area for
the past twelve months.
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Consider using the
services of an outside expert – someone who’s had a lot of
experience in purchasing businesses. There are always details to
every transaction that are best handled by somebody who knows just
what to do.
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Don’t delay the process;
it could give another purchaser the chance to acquire the business
you really want. It’s alright to make an early offer that’s near the
price you think is right, even if you know you’ll probably have to
pay more.
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Don’t look at businesses
that are too expensive for your financial means. Overextending
yourself at the beginning is almost a guarantee that you’ll fall
over when some unexpected problem crops up.
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Always ask if the vendor
is willing to stay with the business during a short transition
period, and if the goodwill component is a significant part of the
asking price see if the vendor will be willing to finance part or
all of it.
Why use a Consultant,
Whether Buying or Selling a Business?
Consultants who have been
involved in a number of business sales and purchases can make a big
difference to the outcome of your own transaction for these reasons:
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If buying, you’ll have a
better selection of businesses to consider; if selling you’ll have a
greater range of prospects.
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They can do your
negotiating for you and give you a better outcome. They can also act
as a ‘middle man’ and keep you from getting too personally involved.
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They will be better at
analyzing the marketplace and ascertaining the real value of the
business.
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They can help keep the
transaction confidential and not involve others such as employees or
competitors.
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You can ask the consultant
questions if you need an honest answer based on experience.
Buyers and sellers both want
the best deal. They want a hassle-free transaction that leaves no doubts
they’ve done the right things and that they’ve achieved what they
wanted. By following these tips both parties will have the best chance
to feel satisfied with the outcome.
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