Preparing your business for sale

When preparing your business to achieve the best possible sales price, you should focus on reducing any perceived risk and maximising profits.

Maximise profits

Most businesses are valued by a capitalisation valuation method that utilises the net profit performance of the business. Essentially, to achieve the best sale price, you need to operate your business in a way that generates maximum net profit while maintaining reasonable operating expenses.

Every dollar you add to your bottom line, net profit EBIT (earnings before interest and tax) could add around $2-$5 to the sale value of your business.

Minimise Risk

It’s important to address any buyer concerns regarding risk. A perceived ‘risk factor’ will be weighed against the amount that a buyer will be willing to pay for your business. In short, the less risk they perceive, the more they will pay.

12 areas of potential risk

These are the main risks that may affect the valuation of your business:

1.     Owner input: for example, is the business too reliant on you?
2.     Staffing: what is the level of staff retention, knowledge and company culture?
3.     Company history: how long has it been running and is it financially stable?
4.     Industry type: does it have any unique products or services?
5.     Systems and processes: what is in place and documented? Is it practised and evaluated?
6.     Industry growth: what is the potential/projected growth and how competitive is the industry?
7.     Lease: what are the conditions of the lease?
8.     Plant and equipment: is it in good condition and well maintained?
9.     Customer base: is it broad and diverse or is revenue dependent on a few key customers?
10.     Market share: is it high or low?
11.     Barriers to entry: how easy is it for new competitors to enter the market?
12.     Business size: for its size, is the business profitable and increasing turnover

Focus on these 12 factors as you lead up to a business sale and you should improve the overall exit price of your enterprise.

Contact Tabak Waikato:

Address: 45 Seddon Road, Hamiton, 3204

Ph: 07 839 5863

Fax: 07 846 0193

Website: www.tabak.co.nz

Facebook: www.facebook.com/TabakWaikato

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Phone: 0274 587 724

Email: phillip@mediapa.co.nz

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