Preparing for a quick sale
Wednesday, December 5, 2007/
In the case of quick sales, it is definitely a case of make haste slowly.
Preparing for a quick sale
Selling a business is not a simple process, even if the buyer knocks on your door. There are many things to consider and each consideration is a potential cause for disagreement between the parties. If these disagreements remain unresolved, this could result in the sale not proceeding.
The secret of a quick sale is in the preparation. One of the key reasons that business sales stall or drag out is through lack of clarity on certain issues. In retail this may come down to the value of the stock. In a service business it may be the realisable value of aged receivables or forward contracts. In a smaller business it may be the conditions in the workout clause. The key is to establish clarity from the outset.
Key elements in a business sale requiring clarity are – price, future performance, assets, vendor behaviour. The discussion on price is generally based around one of two calculations. The more traditional is net assets plus good will, the more common is a multiple of earnings before interest and tax (EBIT). In both cases the buyer will want to establish that the represented figures are genuine.
Future performance is perhaps the most difficult issue on which to place value as it is inherently unknown. This is often addressed by having part of the settlement deferred until a period after the purchase date so that a pattern of future performance can be established.
The valuation of assets can be effectively handled by an agreed third party. Which leaves concern over vendor behaviour as it may affect the future value or earnings of the business. In most cases this can be effectively addressed in the sale document.
With clarity on these issues, the process of sale should be much cleaner, but even so don’t expect it to be complete on a nod and a handshake.
There is generally more to a business that meets the eye, both physically and on the balance sheet. Business buyers want to be assured that what they are paying for actually exists, and that they are paying a fair price. To this end they generally want to undertake some form of due diligence – effective preparation will smooth this process, but not eliminate it.
If any obstacles do arise be prepared to discuss them and just as importantly take the time to reconsider your position. In business sales, a quick sale is measured in days and weeks, not hours and minutes.
To read more Andrew Kent blogs, click here.
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