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Selling your business – tips on getting resources ready

Selling your business

Selling your business

Maximising value

We have found through experience that many businesses have reduced the profitability of the business for tax reasons and, if this is the case, the true value of the business will not be clear from the financial records when selling your business.

This creates a significant problem when the business is being valued for sale, especially if the business is being sold on a multiple of profit.

Automate your business

Many small business owners argue they are too busy running the business to implement costly internal systems and procedures.

With powerful and affordable accounting and management software products now widely available, even a micro business can produce detailed management information in a simple and timely manner. More automated businesses are more valuable businesses.

If a business does not appear in order, the business value goes down, therefore it is important for entrepreneurs thinking of selling your business to implement systems that will have the added benefit of increased productivity and profitability in the lead up to the sale.

Keep documents up-to-date

During the due diligence phase, buyers begin tentatively but then quickly form a judgement about whether all the information provided is credible and whether the business has a good chance of continuing to generate the income into the future.

The sale process will be delayed if the necessary documentation is not in place. Here are some tips to help you to get ready for the process of selling your business.

Succession Planning – what happens when you get it wrong exiting a business?

Human resources

A buyer looks for evidence that the business has a team of people in place who are capable of running and growing the business without the involvement of the previous owner. This makes strong human resources systems vital to a sale.

Staff must be motivated and accountable

Many small businesses are only as good as their management and staff, and prospective purchasers know this. Where the business is a service industry, the value of trained and committed staff is a major component of the deal, and it is important the workforce is motivated and accountable.

Make yourself redundant

Businesses also shouldn’t appear as if they are too heavily dependent on the involvement of the owner. If this is the case, more responsibility and autonomy should be given to senior staff as you prepare to sell, so that when you step out of the picture, the business doesn’t fall apart.

A business will be more attractive to prospective purchasers when it can show its owner is not critical to the operation.

Clearly define roles and responsibilities

The business should have job descriptions that include key performance indicators (KPIs) for each role within the business.

A job description covers why a job exists, what skills or qualifications are required, what are the mandatory and supplementary functions of the job, what the objectives of performance measurements of the job are and how they link to the management goals for the company.

Setting KPIs for each employee means the business owner can better monitor performance.

Develop employee performance plans and reviews

There should be a signed contract with each employee and evidence of performance reviews and their outcomes on file.

All intellectual property developed within the business should be signed off by employees and contractors.

Document policies and procedures

Company policies and procedures should be documented and a procedures manual becomes a useful document when inducting new employees. There should also be a current management chart showing the title of each position and connecting lines showing who is accountable to whom.

Create a business performance scorecard

Other HR issues a buyer will consider are staff turnover, how employees will react to a sale, whether management is respected and employee morale is good.

Have an owner succession plan

An owner should create a succession plan that looks at all tasks he/she performs in the business and identify people who could take over, and what level of training they would need to do so.

New salary and commission packages should be considered for people taking on new responsibilities and a time frame calculated for the delegation of the owner’s areas of responsibility.

Well, that’s some great tips on getting your resources ready when selling your business. Next time I will discuss marketing plans and systems.

Author: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory.

Business Advisor and Compass Business Advisory Founder Kathleen Dale in Townsville North Queensland
Image: Kathleen Dale, Business Advisor and Founder of Compass Business Advisory

 

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Disclaimer

Kathleen Dale
Kathleen has a Bachelor of Commerce and a Major in Business Law and employment law. Kathleen is working on her honors in Occupational Health & Safety & Environment Management and Human Resource because Kathleen believes these areas give Compass Business Advisory an opportunity to give clients the best possible outcomes. Kathleen's experience is vast from a union delegate to a safety officer. Kathleen is a specialist in Small to Medium business, has personally owned and sold her own successful businesses and business compliance is her specialty.
https://www.compass-businessadvisory.com/

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