Volker Hartzsch is an experienced entrepreneur who has built and sold 19 companies over the course of 22 years. This article will look at small businesses, exploring various considerations business owners need to weigh up when the time comes to part with their enterprise.
Selling a small business is a complex process that requires a solid plan to make negotiations a success. Business owners need to consider their motives for selling and whether the business is ready to be sold at this stage.
Prior to focusing on finding a buyer, business owners need to ready the business for sale. They also need to identify the business’s value. Many business owners enlist the help of an experienced business appraiser to help with this. They will also need to consider whether they wish to hire a broker or negotiate the deal themselves.
Once the business owner has found a buyer, there are several financial screenings and other steps that must be undertaken to keep the transaction moving forwards. The business owners will need to work closely with lawyers, financial advisors and other experts to help the sale complete smoothly. They will also need to consider what they wish to do with the proceeds of sale.
Businesses are sold for a variety of different reasons, chief among them the retirement of the founder. Business owners may have become bored of the business or found themselves overworked. A business owner may have died or be suffering ill-health, or there may be a dispute between business partners. Business owners may also seek to part with their enterprise because it is no longer profitable. However, in this scenario, they may find it difficult to find a buyer.
There are several key attributes that make businesses more attractive to potential buyers, namely:
- Consistent income figures
- A proven history of profitability
- An ongoing contract that spans several years
- A strong customer base
When selling a business, timing is everything, including the time it takes for the seller to prepare their business for sale. It is sensible to start planning as early as possible, preferably at least a year ahead of time and ideally two. Careful preparation can help businesses to improve their structure, customer base and financial records, potentially making the business more profitable in the process and therefore more attractive to prospective buyers.
When valuing a business, a popular approach is weighing up the price to earnings ratio. From the buyer’s perspective, past performance is a strong indicator of whether they will see a healthy return from their investment.
Outgoing business owners need to consider what will happen to their staff and any existing debts of the business. They will also need to look at contractual agreements and whether these need to be terminated or can be assigned to the new owners as per the terms and conditions. If the business premises is leasehold, they are likely to need their landlord’s consent to the sale of the business.
In terms of finding a buyer, enlisting the services of a business broker can be a prudent first step, helping the business owner to advertise their business through the right channels to reach the right people. However, when appointing an agent to act on their behalf, business owners must conduct careful research, ensuring that prospective agents have a proven track record of successfully selling similar businesses. They must also check the agent’s terms and conditions thoroughly.
Confidentiality is a major concern in any business sale. The business owners will need to ensure confidentiality to protect their enterprise against the prying eyes of competitors. Discretion is crucial, and the outgoing business owner will want to ensure confidentiality from everyone involved in the sale to prevent word getting out to employees, customers and the world at large, as this could have a detrimental impact on the business, ultimately impacting its value and making it harder to sell.
