You may want to eventually sell your business and may even see it as your “pension”. After all, you have probably invested a great deal of time and money into making it a success. You want to achieve the best price possible.
The sooner you start preparing for a sale, the better – and the more likely you are to achieve a great price. Put yourself in the shoes of a potential buyer. What would you be looking for if you were planning to buy a business.
There are pretty important considerations which a buyer will look at:
Are the accounts straightforward and easy to understand with nothing hidden?
The bottom line is that a buyer is looking at the profitability of the business. No profit, no value (ok, not quite correct, but close).
If you have been distorting the profit by hiding personal expenses or not declaring all of your sales (cash jobs), this will have an effect on the perceived profitability. Most buyers will ask an accountant, such as us, to give an opinion on the value of the potential purchase. While we may suspect, based on profit margins and other clues, that there are hidden transactions, they will not be taken into account when estimating a value.
A bit of extra tax now could result in a much higher sale price.
Clean up your accounts well in advance of a sale. A sudden change is a warning, both to a buyer and HMRC.
Keep asset purchases simple and necessary
You may be tempted to buy things you don’t need or which have a higher specification than necessary. Most potential buyers want a lean, profitable, company and don’t want to be paying for your personal preferences. So, think before you buy.
Think before you buy. Do you really need a top of the range chair, desk, computer, van etc? If you buy them now, do you really expect a buyer to pay extra for them?
Make your business easy to run and manage
The more you can systemise your business so that it can run without you, the higher price you will be able to command. A fully systemised business can sell for two, three or even more times than a business requiring the day-to-day involvement of the owner.
Investment and Venture Capital companies will pay the biggest prices and they are looking for businesses which can be easily managed – by a manager – without direct, daily, involvement. That means a systemised business.
Contrary to popular belief, the best prices for a business are not paid by a competitor or someone in the same industry. A purchaser looking for a complementary or “bolt on” business will often pay much more.
Make your business attractive to this sort of buyer.
Business Sales Agents
This is a word of warning. Our experience of business sales agents is not good. They tend to inflate the business valuation in the belief that you will choose someone who implies they can get a higher price. A couple of recent examples are:
A business which was eventually sold, after nearly a year, for around 25% of valuations put on it by two business sales agents.
A vendor who firmly believes that the value given by an agent is correct – even though they have failed to find a buyer in over four years. For this business, the agent recommended a price reduction of about 25% two years ago – and they still haven’t found a buyer. In the meantime, the vendor has been paying them to advertise the business.
There are exceptions and these, specialist, business sales agents tend to charge quite a lot and specialise in higher value businesses – but they put in the effort and achieve results.
How can we help?
Very simple. Talk to us early enough and we can help you direct your business so that it becomes more attractive to potential purchasers.
If we know what your eventual aim is, we can help you get there. Contact us by phone on 01509 816150, email us at enquiries@centralbusiness.co.uk or use the webform. An initial discussion is absolutely FREE – and we don’t restrict the time required. Whatever time it takes for you to explain your business and your plans is ok with us.
We look forward to speaking to you.
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