If you have started the year with a plan to position your business for a sale then you will need to have all of the pieces in place.
Too often business owners fall in love with the idea of a business sale, what their business might be worth and have even contemplated what they might spend the sale proceeds on. There’s nothing wrong with this, unless it takes over from the pragmatics of what needs to be done to ensure a business sale.
The transaction market for SMEs is an active one at the moment. Sales and mergers are occurring. However, most buyers are approaching the market either looking for a great business or a good business that they can buy at below market price.
If you have a truly great business then you will command a market. There will be buyers simply because of the quality and uniqueness of your business. The demand and pricing for good businesses will depend on how well they are prepared and positioned for sale. Less than good businesses will sit on the shelf – there is not a ready market for them, other than distress sales.
Most businesses are not truly great businesses; however, there are plenty of good businesses. So it comes back to preparation and positioning.
Preparation is about having your business sale ready. Key things buyers are looking for include strong profits, a provable growth story and identifiable synergy benefits.
The profits and growth need to be more than the recent events of the past quarter or year; trends are proven by passage of time; and have three plus years of proven results and you have a good story to tell.
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Synergy benefits exist where you can identify either material savings in costs or potential revenue uplift for the purchaser. The ideal merger of acquisition will provide both opportunities. Identifying and, to the extent it’s possible, quantifying these synergy benefits assists in supporting your price and will also increase the attractiveness of your business.
Positioning the business for sale is all about understanding who the potential buyers are likely to be. Today in more than 50% of transactions completed the buyer and seller is known to each other. They may not know each other on a one-on-one basis but they are known names. And sometimes the buyer will come from left of field.
In many cases the ideal buyer for your business is someone who is not even in the market to buy. Positioning the business for sale is about identifying the buying group and then having the information, marketing and approach to the buyer pool that will draw out the best outcome.
So if you are contemplating a sale or merger then there is probably some preparatory work that needs to be done before any transaction stage. The pre-transaction stage is what often makes the difference. A little bit of planning not only increase the chances of completing a transaction; it should also improve the result.
Worth thinking about.
Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.