YOU'VE built up a great business, but for whatever reason you want to move on. How do you make your enterprise attractive for potential buyers?
You have stellar client relationships, satisfied employees and superior stock management systems. You know your industry sector inside-out and you’re proud of your lead on the competition. In fact, the myriad merits of your business seem blatantly obvious – to you at least.
But you feel it’s time to move on or retire and you’re looking to sell. Now what? When you make that big decision, you still have your work cut out for you - you have to exhaustively prove just how fantastic your business really is. Lindley Edwards is CEO of independent investment banking and advisory firm Venture Group and has helped many small-to-medium enterprise (SME) owners sell out.
According to Ms Edwards, effective preparation impacts significantly on the ultimate sale price. "It’s not unlike sprucing-up a house for sale,” she says. "You would clean the house, paint it and make it look the best it can. Selling a business is similarly hard work, and you need to invest the time.” While the recent downturn in global share markets affects the willingness of larger listed companies to acquire smaller fry, Ms Edwards believes there is always a market for strong
SMEs with growth potential. “It is true there are fewer companies in the short term looking to buy, but SMEs have other 'purchasers’ that are still keen,” she says. "These may be individuals such as business migrants, or people who have exited one business and are looking to buy another.” John Casey, chief marketing officer at Vodafone Australia, agrees Australian SMEs which can demonstrate longevity and unique selling points will still appeal to buyers. "All other ducks being in a row, such as proven earnings history and experienced management, a strong brand and excellent marketing collateral can make all the difference,” says Mr Casey. "It is worthwhile examining exactly why your customers buy from you and not your competitors.
Make these unique selling points clear on your website and marketing materials. "You could even consider hiring a designer or copywriter to revise and refresh the look and tone of your business. “ Look from the outside in There are many aspects business owners need to consider when proving how tasty their SME is, but perhaps the most important is to always view your business from the perspective of the buyer, not from your own (potentially rose-coloured!) glasses.
Ms Edwards advises her clients to zero-in on the specific information buyers are seeking. "Identify who might buy your business and what boxes they are looking to tick,” she says. "What information would you be looking for if you were in their shoes?” If an SME’s prospective buyer is a listed company, Ms Edwards suggests examining its previous acquisitions for clues. "ASX announcements are a good indication of what they are looking for. Look for the reasons given for the purchase and the terms of sale.” Although your business may be your pride and joy, you need to demonstrate it can operate effectively without you at the helm. “Businesses need to display robust systems and processes to prospective buyers so they feel comfortable taking the reins,” says Ms Edwards. Re-occurring revenue, such as ongoing contracts, is another important area to highlight. "This means a buyer can be more certain about revenue and know they won’t have to wake up every day and continue to sell the business - they can focus on growth instead.” Prior to sale, SMEs should also review their intellectual property and trademark any necessary aspects. Product-based businesses should define their inventory management systems and dispose of any obsolete stock. Commonsense measures, such as cleaning up the business, are often overlooked by SMEs, says Ms Edwards. This may include agreements with staff, landlords or clients and also basic financial management. "Once again, put yourself in the buyer’s shoes.
You would expect tax returns to be done and for everything to be filed and up-to-date. "Buyers can get easily scared off. They will look at all aspects of your business, depending on how bearable the negatives are, they will either walk away, or reduce the price. "It’s up to business owners to minimise these negatives.” Ready to sell out? • Seek help! Refer to an online guide, or see your accountant, lawyer or patent attorney if necessary • Don’t "gild the lily” when it comes to the value of your business. The due diligence process will examine all aspects of your business regardless • Clearly express your reason for sale • Develop future plans, or areas of potential profit, which a purchaser will be able to exploit.
