By Marnus Broodryk, Shark Tank SA Investor and Xero Gold Partner
Selling a small business can be a difficult undertaking. As well as working out how you’re going to get the right price, the preparation can be a huge strain on time and resources. That’s before you’ve actually gone out and found someone to buy your business. A listed company can be ‘sold’ just by offloading shares, but for an unlisted one, the leg work involved is quite considerable.
Speaking to investors, due diligence, and maintaining a healthy bottom line is all part of the lengthy journey to letting go. Before you start looking for suitors, it’s vital you get your affairs in order and maintain a healthy cash-flow to avoid putting off potential buyers, ensuring you get the best deal possible.
Here are the three main areas you should get in order before selling your business.
Put the right price on it
Determining a sensible and realistic price should be your first step. This is more difficult than you might think. When starting a business, we’re driven by our emotions, and this can tend to mean that we put too high a value on our business.
The trouble is, buyers understandably aren’t as sentimental. They’re not going to purchase your business at an inflated rate just because of your emotional attachment to it. Take a step back and put yourself in the shoes of potential buyers. Approach this process with a cool, calculated and pragmatic head, and you’ll get a clearer of idea of what’s realistic.
A good rule of thumb is to sell your business for two or three times its annual profit. In South Africa, a business that makes R2 million yearly could reasonably be sold for between R4-6 million. It will probably not sell for R7-8 million. Be reasonable and realistic. Never let it go for less than it’s worth, but don’t start out with the expectation that it will sell for more. Still not sure how much to sell your business for? Consider getting advice from your business advisor or broker.
Make sure your finances are on track
Nothing scares off a potential buyer more than financial irregularities. Whether you’re lacking detailed records, don’t know how much money you’re making, or can’t easily access the right report, you’ll put a buyer off – even if nothing’s wrong. Any sort of disorganisation gives the wrong signal and that’s not what you want. Seek guidance from an accountant who can help prepare all the right reports you’ll need.
The less information you provide, the worse your odds of attracting an interested buyer. Make your company look like an opportunity, not a risk.
Harness the power of word of mouth
It might sound obvious, but you’ve got to let the world know that you’re business is for sale. Talk to friends in the industry and see if they’re interested. Promote it on public platforms such as LinkedIn. If these options don’t work, appoint a broker to sell the company on your behalf. It will come at a cost – often around 10% of the sale price – but if you want to offload your company it may be the best option.
Selling your business is always a tough choice. It’s the end of an emotional, professional, and financial commitment – and with these ends comes great uncertainty. It is therefore worth doing it right. Don’t add unnecessary stress or confusion to the process, and follow the above three steps before you try to sell.