Selling or otherwise disposing of a business requires some forethought, strategising and careful implementation. In some ways, it’s a little more complicated than starting a business. For instance, while there is really only one way to start a company, there are at least three primary methods for entrepreneurs to leave the businesses they founded: selling, merging and closing.

Selling the business

Deciding to sell the business you have worked so hard to grow is rarely an easy decision. However, it may be the right one under some common circumstances. Selling may be preferable to owning if:

• You or another owner get divorced and need cash for a settlement.
• Partners who own the business decide to dissolve their partnership.
• One of the owners dies or becomes disabled.
• You are ready to retire and have no heir to continue the company.
• You want to do something more challenging, more fun or less stressful.
• You don’t have enough working capital to keep going.
• The company needs new skills, a new approach or resources you can’t provide.

When is the best time to sell?

If you’re aware of the factors that indicate selling is a good idea, you can time the sale to take advantage of high prices. Usually, you’ll get the most for your company when sales are climbing and profits are strong.

If you have an unblemished history of solid performance, by all means, sell the company before trouble strikes. Other factors that may affect the timing of a sale are availability of bank financing, interest rate trends, changes in tax law and the general economic climate.

Sell it yourself or use a broker

You can sell your business yourself, but many owners contract with a professional business broker to handle the job. In addition to the training and awareness of relevant legal, tax and accounting considerations, a good reason to use a broker is to protect your anonymity and confidentiality.

If you are advertising your business for sale and showing it to prospects, it compromises your ability to continue leading the firm. A broker can front for you, screening prospects and keeping the identity of the business owner secret from all but qualified buyers.

Mergers and acquisitions

Most business buyers are individuals like you who want to become small business owners. But sometimes you can transfer ownership of a business to another business in a merger or acquisition.

As a rule, businesses have deeper pockets and borrowing power than individuals, and they may be willing to pay more than individuals.

Businesses also tend to be more savvy buyers than individuals, increasing the chances your business will survive, albeit perhaps as a division or subsidiary of another company. However, businesses cannot move as fast as individuals. It may take you a year or more to get your company ready to be merged or acquired. You will need to:

• Clean up the balance sheet.
• Drop poorly performing products.
• Terminate insider deals, such as property the company is renting from you or family members.
• Trim excessive fringe benefits.
• Make sure you’re paid up on all taxes.
• Have at least two years’ worth of audited financial statements.

Finding the best candidate

The best candidate for a merger is a company that sees yours as a strategic fit with their own firm. If you have something they want and can’t find elsewhere, such as a unique product or distribution channel, they may be willing to pay a premium price. A competitor who only wants to put you out of business is usually a poor merger prospect, however. This buyer is motivated only by price and probably isn’t interested in preserving the business.

Sometimes, the best thing to do is simply sell your inventory and fixtures, pay your creditors and employees, close your doors and walk away. Closing may be the best option if your business is failing, isn’t valuable enough for anyone to want to acquire it, or is the type of business that is unlikely to be valuable without you personally operating it (a law office is a good example of this).

If you can’t raise enough money by disposing of your assets to pay everyone off, you can give them what you have and promise to pay them the rest later on. You can usually avoid legal wrangles if the debts are small enough. Variations on this theme include making formal or informal arrangements to pay off your creditors, filing for voluntary liquidation and declaring bankruptcy. Only bankruptcy is intended to give you a second chance. The others are almost certain to result in the end of your business.

Finding the value

Value, like beauty, is in the eye of the beholder. There are probably as many ways to define value as there are businesses. The basic definition is how much money the business could be expected to sell for on the open market. But that’s dependent on what a hypothetical buyer is looking for, how the business has positioned itself, and exactly who is doing the valuing.

In this sense, value does not necessarily equal net profits or even break-even performance. Cash flow is usually more important than profits are when valuing small businesses.

An entrepreneur may chalk up a trip to Cape Town for a meeting as a business cost or keep a spouse or child on the company payroll when a publicly held company would not. To accurately assess the value of a business, the ability to employ family members and mix business with pleasure must be accounted for.

Value may also come in other forms

Ownership of a patent, proprietary process or trade secret may, by promising exceptional future cash flow, increase the value of a business. Companies that dominate a market, no matter how small, are often sought out for purchase at premium prices by other firms that, for one reason or another, want to add that niche to their existing businesses. There are different kinds of value for different kinds of people.

Can you count physical location as a component of value?

Many businesses count their physical location as a primary component of value. That’s especially true in the case of restaurants and other retail businesses and, again, is not necessarily connected to cash flow or profit. Some retailers make a practice of buying businesses only for their locations rather than how much or what they sell, or who they sell it to, figuring that a high-traffic spot will eventually prove a winner for some business combination.

The business itself may not be doing well, but if the business got good terms and conditions on its lease, and is in an excellent location, sometimes they can switch what they sell there.

Location plays a role

Location may also play a starring role in value if a company is located in a resort community that has a lifestyle that’s attractive to would-be business owners. Other businesses, such as bed and breakfasts and bookstores, may have higher values because they appear glamorous or simply interesting to potential buyers.

Goodwill

The intangible known as goodwill is another key consideration in a business’s value. Goodwill may range from a long-established distribution network to a sterling market reputation. And sometimes a buyer will pay top dollar to obtain a business with great goodwill.

Cash flow statement

Experts agree that if you want to boost your business’s value, pay close attention to the bottom line of your cash flow statement. That’s because most of the time, the value of your business is simply a multiple of the cash flow it generates.The term asset is the value of any tangible property and property rights owned by a company less any reserves set aside for depreciation. Assets don’t reflect any appreciation in value unless they are sold for the greater value.

Balance Sheet=Worth

Profits aren’t the only way to measure a company’s success. You should also be aware of how much your company is worth. One way to do this is to examine your company’s most updated balance sheet. That figure at the bottom for net worth, representing assets minus liabilities, is a good indicator of whether you’ve built value in your business – and if you have, how much.

Don’t stop your valuation check-up with your balance sheet, though. There are a few other ways to measure value. One of the most important valuation techniques is based on expected future cash flow, or how much cash your company should be able to throw off for you or another owner in the next several years.

Businesses are typically valued as a multiple of their future cash flows, but different industries and types and sizes of businesses use a variety of indicators. To find out what rule applies to your industry, check with your trade association.

Selling your own business or entering into a joint venture with another company can be a complicated and emotional procedure.

Never enter into a deal without good advice. Legal, financial, tax and other considerations will arise throughout the selling process and decisions should not be made without the advice of experienced professionals.

Get your financials in order

Make sure that the financials are audited before presenting them to the buyer. You should have the past three years of financial statements and tax returns available for the buyer to peruse. Take care of any outstanding issues with the SARS or lenders, as these could diminish the trust of the buyer. Make sure that your financial documents are up-to-date and as accurate as possible.

Do not attempt to sell the business yourself

Consider hiring a business broker who specialises in the industry to complete the deal on your behalf. Valuing your business is an arduous yet necessary task when you decide to sell. Valuation, financial statements, preparation of the business for sale, negotiating various details, and closing the deal are all crucial components to a successful sale of your business. Each phase requires a different set of skills and experience that a qualified business broker can provide.

Don’t tell everyone about your plans

Keep the sale of your business quiet to prevent issues arising such as negative attitudes from employees, customers and suppliers.

Legal advice

The biggest challenge a seller has to face is the fact that they have to negotiate sensible terms so that the seller isn’t faced with disastrous consequences. Generally, sellers are far too trusting of buyers who promise a large cheque. The seller may expect to be paid in one transaction but may not understand that payment is deferred and, even perhaps, conditional on future profits or other conditions which are usually not within the control of the seller. This is why a lawyer, who is skilled in this area, will be able to point out potential problems.

Where is the best place to advertise a business that is for sale?

The best option is to consult with a business broker. The broker will act on behalf of you, the seller, as well as the buyer of a business. A broker can estimate the value of the business and advertise the sale without disclosing the businesses identity. They will handle potential buyer interviews before involving you.

Referrals are a good way to find a suitable broker

Choose a reputable brokerage to represent you. Your accountant or lawyer will be able to recommend a good firm that is located in your area.

Working with a broker when selling your business

Business brokers act on behalf of the seller of a business as well as the buyer of a business. A broker should estimate the value of the business and advertise the sale without disclosing the businesses identity. They must handle potential buyer interviews before involving the seller and negotiate with prospective buyers. They should help with legalities and facilitate the due diligence investigation. A business broker should ideally have a business degree.

Choosing a business broker

• Choosing the broker is difficult and there are questions that you need to ask:
• How experienced are they?
• Do they specialise in a certain kind of business?
• Can they provide references?
• Can they carry out due diligence
• What fees do they charge?
• How many deals have they dealt with?
• What are their qualifications?
• Are they members of any business associations
• Who to contact

Source: ExpertHub