We receive many enquiries from people either looking to buy a business or looking to sell their business. Many businesses are sold “under the radar” often without them being widely marketed. Sensitivities towards staff and clients and confidentiality need to be managed carefully. Often, from an outsider’s point of view, there is little evidence that a sale process is even happening. The market may not know a deal has been done until it’s concluded. Conversely, some businesses are actively and openly marketed through the likes of real estate agents, business brokers etc. All have their merits, pros and cons. Understanding what’s best needs to be considered on a case-by-case basis.
Before a business can enter a sales process, it’s important that the vendor has some kind of appreciation of what the business might sell for. It’s prudent to engage the services of a suitably qualified valuer to help with this. Often, there is a mismatch between what a vendor thinks their business is worth and what the market is prepared to pay for it. Vendors should be realistic in their views so as not to price themselves out of the market.
Another important consideration is whether the value indicated will actually work for the vendor. Will the vendor walk away with enough money to:
- Clear bank debt.
- Pay creditors – including the IRD.
- Be able to maintain the desired lifestyle post-settlement.
In some cases, the value that can be extracted doesn’t “tick enough boxes.” The sale proceeds won’t be enough to satisfy all three criteria above, then what?
The only option is to carry on in the business, to identify opportunities that improve performance, increase profitability and ultimately drive up the value of the business. This can be very challenging for business owners who may already be feeling like they have exhausted all avenues. Engaging the services of a suitably qualified adviser with a fresh pair of eyes can be beneficial to help:
- Identify the key drivers/lead indicators in the business and focus on developing those.
- Develop an effective plan that is clear and concise with short, medium and long term goals.
- Hold the business owner accountable for the plan/actions.
- Provide a sounding board for the owner.
- Gain an appreciation on how decisions impact on profitability and the value of the business.
As the baby boomers move towards retirement, the number of businesses changing hands will increase. What is your succession plan and are you comfortable it will tick your boxes?
If you have any questions, please contact your local Findex adviser.