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Frequently asked questions - Tips on selling a business

Q1. Is there a right time to sell?

It is best to sell before everything has gone “pear shaped”. While sales and margins are increasing, and there is still blue sky for the buyer. It is tempting to hold on in the hope the price will be higher later. But the people who sold before the recent sub-prime crisis may well prove to have been smarter than those who stayed on, as the business cycle now suddenly appears headed for a downturn.

Generally it pays to plan ahead and prepare your business for sale.

Q2. What should people consider when preparing their business for sale?

The most important thing when preparing for a sale is to make yourself redundant. It is very hard to sell a business that is totally dependant on you working a 60 hour week. Who wants to pay good money for a life like that?

In particular, start banking all the money, even if it means paying tax, and write up your closing stock and work-in-progress to full value.

Next is the question of perceived risk for the buyer. The lower the risk, the higher the price. So the more you can do to instil confidence in the buyer, the better. You can do this with documentation – document your sales, your supply agreements with suppliers and customers, your procedures etc etc.

Q3. What are some options for selling your business?

  • Close shop and auction the equipment
  • Talk to your customers, suppliers and competitors
  • Advertise it for sale yourself in the local newspaper
  • Ask your Accountant to sell it for you
  • List it for sale with a local Agent
  • “Target Marketing” through a reputable Broker.

Q4. How do you find the right buyers?

A hairdressing salon has no value to a butcher. If you offered it to him for free, he still wouldn’t want it. So you need to search for motivated buyers who think they can add value to the business. They will see less risk in it, and be prepared to pay more.

You can do this through “Target Marketing”, where you concentrate your marketing activity on searching for qualified buyers with a strategic interest in buying your business, rather than relying on luck, or paying a fortune to advertise to people who are never going to be buyers.

Q5. What are some tips to maximise the sale price for your business?

As with any form of selling, you need to focus on what the buyer is looking for, understand his motivation and highlight the factors which are important to him. Is he after your location, your customer base, your product range, your distribution network, your name and reputation? Does he just want you out of his market?

The ultimate limit to the price you can get for your business is the price at which the buyer decides it would be cheaper to start up a new business in competition than to buy your business. If you know why he wants to buy your business, and what he hopes to achieve with it, you can make an estimate of this cost and work out how far you can push him.

Q6. What are the alternatives to selling your business?

I don’t understand this question.

Once you have decided you want to free up your time and/or capital from the business, selling all or part of it is your only option. You could retire and appoint a manager, but that would still require oversight, and leaving your capital at risk.

Selling all or part of the business to offspring, Management, or the public (through an IPO), are also options.

 

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