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.
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