There may be many reasons why a business owner may want to sell their business
These reasons could include:
- Reaching retirement age and wanting to take life at an easier pace
- Moving on to a new venture
- Ill Health
- Selling off part of the business that is not connected to the core operations
- Takeover by a business in the same industry or trade
Many businesses are likely to be sold over the next five to ten years, especially when the business owner is approaching retirement age.
It is therefore vitally important to ensure that your business is fit for sale and that the asking sales price is maximised.
After all, it is often stated that to enjoy a comfortable retirement, it is necessary to have a retirement fund of at least $1,200,000 (or $60,000 for 20 years). Ideally, a higher fund is much more desirable.
Given that one of the most popular business valuation methods is 2.5 time of net earnings, to achieve a sales price of the business of $1,200,000, this would equate to annual net earnings of $480,000.
How does your business rate against this amount?
Of course, there are many business valuation methods which may also include balance sheet valuations and a goodwill element.
Goodwill is an intangible asset and can be related to unique quality factors of the business’s products or services, quality of the Customer database and business returns being over the relevant market benchmarks.
No matter what valuation method is used, it is important to prepare in advance for the sale of the business. This can include:
- Ensuring that Business performance up to the date of sale is maximised. This relates both to profitability and business value. After all, is it better to sell a business for $1,200,000 rather than $600,000?
- Ensure that all the operational elements of the business are supporting each other, and that no element is out of alignment.
- Ensure that all business processes and procedures are up to date and well documented and will withstand the most in-depth due diligence process.
- Identify which staff are going to be involved in the eventual sales negotiations and remembering to bring in external expertise as and when required.
​Selling a business can be stressful, but much of this stress can be eliminated by preparing early.
It is never too early to work upon the business, to arrange a profit leakage diagnostic and working with someone to ensure that all the operational elements of the business are in correct alignment and supporting each other
To maximise the sales price of your business please contact Chris now
PH 021 620 629
E Chris@ecam.co.nz
