This article was originally created for Hayes Knight (now Nexia Auckland).
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You want to make it as easy as possible for a potential purchaser to walk in and take over. Documenting processes and ensuring that there is as little knowledge ‘in your head’ as possible will give a potential purchaser confidence that the business will continue successfully after your departure.
Where possible it pays to ensure that contracts are in place with key customers. The longer the contracts, the more confidence and security an incoming owner will have that the business will continue ‘running as usual’ for as long as possible.
Too many people take their eyes off the ball and it is not until the performance of the business is declining that they decide to sell. People usually pay a multiple of the profit that the business makes – therefore, ensure that the business is making as much profit as possible in the years leading up to your ideal exit date.
Often the best people to continue the business may be right under your nose. Key staff members generally have extensive knowledge of the business and are often already devoted to its performance. These employees could be the perfect people to continue the business in your absence. It may even be an option to sell a portion of your business to a senior employee and reduce your involvement in the short term.
QUALITY OF FINANCIAL INFORMATION
Ensure you have good, accurate and timely financial information. This will be the first place a buyer will look to determine the value of the business. Buyers don’t like surprises and their value assessment can be negatively impacted if buyers find ‘holes’ and doubts creep in as to the reliability of the financial information. While historical financial data is important, financial forecasts based on robust assumptions are also key to provide a picture of future earnings. These are just a few areas that are worth considering when contemplating selling a business. Remember the best time getting your business ready for a sale is at least 2-3 years before your anticipated sale date.
If you would like more detail or to create a structured plan, please contact your Hayes Knight advisor.