Have you ever considered selling your business? Or buying a business?
Wondered how to go about it and how to maximise the value?
There are two key components in the sale of a business:
- Structuring the transaction; and
- Positioning the business to the market.
Both elements are important and can significantly impact your result.
Structuring the transaction covers areas such as determining a price for the business, the terms and conditions of the sale, key terms in the contract, and ensuring the transaction structure is as tax effective as possible. Structuring is all about maximising your position.
Positioning the business for sale is all about getting a sale and maximising your price. It includes:
- ensuring there are no obstacles or issues within the business that will limit its saleability;
- identifying the position of the business within its market segment, who are the competitors and how you rank in relation to them;
- ensuring that operating performance is as good as it can be, maximising income and profits, and;
- ensuring that the business benchmarks well in its market, it obtains sales and profits at a rate comparable to similar businesses in the same market.
Positioning also includes identifying the best time to take the business to the market, how to take it to the market, and who the most likely buyers will be. Is now the right time? Should you wait for a different season or cycle? Can you increase Sale or profits if you delay for a time? Is there an employee or someone you know who may be interested? Is a business broker appropriate? Is there a like business looking to expand?
Positioning is about doing everything needed to maximise the probability of a sale occurring, whereas structuring is about getting the best outcome from a transaction once it has occurred. Whilst the structuring of the transaction is important it only becomes important if the sale is achieved.
Structuring should be addressed first, and well in advance of positioning, to help identify any key decisions that need to be made but put most of your effort into positioning the business for sale. To position a business well, you need an objective assessment of how the business compares in its market, its competitive position, and what if any impediments to sale exist – all the things a buyer will look at and look for when they are considering your business. Most buyers believe that we are currently in a buyer’s market and will try to drive down price expectations. Whether or not you are in a buyer’s market depends on your industry segment but regardless of this, you are in a competitive market. Buyers may be comparing your business to similar businesses but also opportunities in other industry segments. Securing a sale at the best possible price is about having your business positioned for sale. Preparation time is needed to achieve this well in advance of putting your business on the market.
If you are looking to purchase a business structuring is of particular importance for you. Positioning is more about getting the business sold so if you are looking to purchase you should be more focused on assessing the business profitability, market positioning and potential for growth. All very important factors. Consideration should be given the business results over several years, not only the profit but also what expenses are likely to be adjusted if you were in charge. Is there capacity for the business to grow using your skills or ability to increase market share? Are there changes coming that may affect the business?
If you are considering either buying or selling a business talk to us today to see how we can assist you.