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How much should I sell my business for and is it the right time?

At BSP Advisory we deal with many New Zealand businesses across a broad range of industries and one of the common questions we get is “How much should I sell my business for and when is the best time to sell?”

The answer to this question is you should sell your business for the most you can and the best time to sell is when the business is at peak performance i.e all systems and processes are documented and functioning efficiently and the business is profitable.

Unfortunately, many business owners do not focus on the efficiency and profit part of the process and leave alot of money on the table. Many still expect to sell the business for a high value without these crucial components.

Sadly this is not the case and the reality can be a hard pill to swallow particularly for owners who have spent their whole life in the business. This is where the BSP Advisory Framework shown below can pay big dividends when implemented and actioned into a business prior to sale.

Buyers look very closely at the operational side of the business and will pay more if the business is running smoothly and consistently plus is profitable.

We may be able to assist you with a valuation for your business. Our nationwide advisors have great local contacts.

It is worth getting an opinion as every business is different and business valuation calculators can be misleading and potentially reduce the profit you deserve. Nothing compares to an experienced business advisor who understands your industry, the current market plus what makes a business valuable.

Coupled with the fact that a lot of baby boomers will be selling their businesses in the next five years meaning alot of stock on the market, you need to put your best foot forward.

Why you should NOT use a business valuation calculator!

The calculators work on a rough calculation based on the following:

Businesses where the owner is actively-involved typically sell for 2-3 times the annual earnings of the company. A business that earns $100,000 per year should sell for $200,000-$300,000.* 

The problem with this type of calculation is we have seen businesses sell for a lot more than 2-3 times the earnings and this can only be determined by a proficient business advisor

Why would someone sell a profitable business?

There are many reasons people sell their businesses and they may include the following:

  • Lost interest in the business. 

  • Looking to retire. 

  • Looking to diversify their investments.

  • The need to raise money for another venture.

  • Health/family issues that prevent them from running the business.
    The owner may want to take advantage of capital gains tax benefits.

  • New career goals that require them to move on from the business.

  • They want to sell the business to family members but stay on the in the business in a part time role.

One of the many services offered by BSP Advisory Group is Business Succession Planning.

Succession planning is an intentional effort to identify, develop and educate potential successors who are capable of taking over the business and carrying on its success with both parties benefiting financially in most cases. This is done through our BSP Navigator Exit and Succession System.

More details here: https://www.bspadvisory.co.nz/how-we-help

What are the major influences on business buyers?

Apart from the efficiency of all aspects of the business and the profitability, there are other factors beyond the business owner's control.

  1. Economic factors. These include economic conditions, inflation, taxation policies, cost of labour, availability of capital, energy costs, and exchange rates.

  2. Competitive forces. These include both direct and indirect competitors, substitutes and new entrants into the market.

  3. Political and legal factors. This includes government regulations, trade restrictions, and political stability.

  4. Social and cultural factors. These include consumer preferences, tastes, and values, and the demographic makeup of the population.

  5. Technological factors. These include advances in technology that can impact the cost, quality and availability of a business’s products or services.

    This is why having an experienced business advisor as a partner can make all the difference. Knowing what is going on in the market can help position the business to get the best buyer possible.

Considerations when selling your business

What steps do I need to take to prepare my business for sale?

To sell your business successfully you need to plan well. An initial conversation with one of our BSP advisory advisors can give you a great feel for how ready you are to sell and what needs to be done first plus a price point to sell for.

How will my business be valued?

The valuation will be decided by you as the business owner with advice and guidance from one of the BSP advisors. The decision will have many facets factored into it including the readiness of the business, the profitability, the staff, and the consistency of systems and processes.

It’s not uncommon for the owners to hold off while a plan is implemented to get the best possible outcome. 

Our advisors have years of experience plus current knowledge to assist in this process and it's not uncommon for business owners to say how much they value the relationship due to the better price they achieved in the marketplace.

What are my options for financing the sale?

There are strategies for financing the buyers using concepts like retaining shares, leaving some money in the business for a period of time and other options. 

Check with your local BSP advisor on what best suits your needs.

How can I protect myself from potential legal and tax liabilities?

Having a good lawyer and accountant is crucial to the process. We can advise you on who is good in your area if needed.

What paperwork and documents will be required for the sale?

A sale and purchase agreement is usually handled by a solicitor to give you maximum protection.

What costs should I expect to incur during the sale process?

Advertising fees, time, and if you decide to use a business broker they will have fees also.

How will I transition my staff, customers, and suppliers to the new owner?

This is part of the plan created earlier on and if you are undergoing succession planning at the time it makes the process much easier.

What should I do to ensure that the sale goes smoothly?

Keep the staff motivated so sales are maintained. Put out any fires quickly and without fuss.

We hope this has helped.

Questions? Leave a comment below and we'll get back to you. Want to bounce ideas with a business advisor and make a plan around exiting your business? Contact us to book a consultation.

* Plus stock, fixture and fittings etc