Steps 1 & 2 of 10 on how to prepare for a successful business sale

Steps 1 & 2 of 10 on how to prepare for a successful business sale

1. Create a plan

 It can take an average of 6-9 months for a fully prepared, well-marketed and priced business to sell in a capital city. Regional areas can take up to two years, if they sell at all. 

• Be prepared: Allow time to prepare your business premises, gather information and understand the sale process
• Financial information: 2-3 years and quarterly updated Y.T.D. numbers updated and available
• Tax Paid: Is your BAS, Superannuation and tax up to date?
• Lease: Secure your lease. Most buyers will look for a minimum 6 years (including options).
• Cash: Run everything through the books 
• Equipment: Fix or dispose of broken equipment
• Open your eyes: Pretend it’s the first time you have visited your business – would you buy it?
• Inventory: Do a stocktake. Make sure your inventory is accurate and saleable.
• Dispose of dead stock: Keep your business clean and relevant. Holding onto dead stock costs you money. 
• Educate yourself: The earlier you get the right advice, the better the outcome! 
• Don’t try and sell it yourself: Using a broker will get you far better financial and emotional results

2. Know your Nett Cash Out Position and Sale Price

Knowing how to calculate your Nett Cash Out position is vital when you wish to sell your business. Nett Cash Out will determine whether you are ready to sell and validate any predetermined ‘need price’. 

 

• Most business sales are negotiated with the condition of being sold Unencumbered - Debt Free (excluding any property leases)
• Most transactions require that everything (apart from your factory or shop lease) is paid out. Once this occurs, it’s time consider your specific tax implications.

 

Nett Cash Out

There are many variables and complexities to arrive at a specific number. EBS can provide you with a simple guide to enable a quick calculation.

 

Once you have followed the steps to determine your approximate nett cash out figure, speak to your accountant to find out your tax outcome based on this figure. The tax to be paid is highly dependent on many factors.

 

Then ask yourself ‘Is this enough for me? Am I ready to exit?’

• If the answer is NO,
  • Contact us to discuss coaching programs or assistance to improve your business and increase your longer-term sale price.  

• If the answer is YES, 
  • It’s time to decide when to go to market! To gain the best result, allow at least 12 months before you want to get out. If you need to move more quickly, give us a call to discuss your options.

 

Sale Price: How do I calculate what my business is worth?

Selling your business is a big decision. Education and a clear understanding is critical to achieve the outcome you desire. 

 

There are two common ways to establish your business worth

 

Valuations: Given for a specific purpose and are usually inflated compared to the actual price a business sells for

 

Appraisals: Show you the likely price range your business will sell for

 

So, how do you work this out?

 

There are two parts to a sale of a business - price and conditions.

 

Price: How much cash per year the business is likely to generate is usually calculated based on historical performance. Businesses with a minimum of 3 years trading history paint the best picture.

 

It is worth organising a proper appraisal to get this done correctly and establish a more exact sell price.

 

Conditions: Buyers often introduce conditions to the sale which can carry just as much weight as the price.

 

Our job as your broker is to negotiate the best price coupled with the conditions that suit your needs.