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26 Jul
2017

Amber

Communications manager
 

Selling a business is not a simple process, it is a multi-faceted procedure with many steps throughout its progression. However, when done correctly, the sale of your business can be significant in your pursuit of success. On the other hand, if things go wrong it can mean months or even years of wasted time and you could be watching your chance of a sale go down the drain. Experienced buyers know what to look for and will take advantage of a poorly made deal or simply pass up on the offer if they come across any warning signs. To successfully sell your business, here’s the things you must know beforehand.

 

Get familiar with the acquisition process

 

The first and most crucial thing to know before selling your business is to understand the entire process of such an endeavour.

 

Learning about the acquisition process means you won’t come across any unexpected surprises and will be prepared for what’s to come and how long it might take. Your exit strategy should be considered long before you begin the process of selling, but once this begins, usually with an evaluation, it can take up to a year on the market before it is sold.

 

Becoming familiar with the key steps in selling your business is crucial. Here’s what steps you should understand:

  • Valuation and how to maximise value
  • Confidentiality
  • Engaging Buyers
  • The Offering Memorandum
  • Management Meetings
  • Negotiation and Deal Structure
  • Letter of Intent and Term Sheet
  • Due Diligence
  • Closing Documents and Process

 

Know what buyers are interested in

 

What buyers look for in a business for sale obviously affects its value. Understanding this, and knowing what they look for can greatly help sell your business.

 

Firstly, buyers won’t pay for potential. No matter how good a concept looks, or how much value an owner places on their business, a buyer won’t pay for something that isn’t well established with healthy profit and growth.

 

More importantly, buyers are interested in profits not revenue. Your revenue might be high, but so might be your expenses, meaning lower profit. A lower revenue, with lower expenses can mean a greater annual profit, and this is what will interest buyers. On top of this, buyers are usually only interested in recent and current performance. A successful year 5 years ago doesn’t mean much. Having good growth and profit for the last 1-3 years is key.

 

Buyers will also expect verifiable financial claims. This means if you are claiming income from a specific source, you will need to prove it with multiple documents. For example, if you have sold space for advertising, prove it with an invoice and a bank statement with the matching deposit. Be prepared to show these things and to be honest.

 

Additionally, it’s important to note that buyers don’t exclusively look at the financial side of things. They also consider risk factors, scalability and growth opportunities and customer concentration.

 

Invest in a Valuation

 

Investing in a quality appraisal from a high-end broker, like Digital Exits is extremely important in the process of selling your business. In fact, Digital Exits offers a free valuation where they will look at the numerous important factors to determine the value of your business.

 

Have an honest and substantial Offering Memorandum

 

The Offering Memorandum is a prospectus or brochure type document that will help you market the sale of your business. This is the thing which draws attention to your business and can interest buyers. It should be honest and full of relevant information such as operations, products/services, detailed financials, senior staff and management, major accomplishments, significant risks and future outlook and opportunities.

 

Maintain Confidentiality

 

Protecting confidentiality is important for both parties involved. This can be achieved by using a business broker who will help with locating a buyer, answering questions and negotiating terms, maintaining both party’s confidentiality. This gives everyone confidence to move forward and close the deal.

 

Selling a business is a huge endeavour with many steps involved. Knowing what to expect is crucial in the process. Taking these steps into account is a great starting place for selling your business.

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