Achieving the best price for your business

Most business owners have an exit plan and in many cases it revolves around retirement, shareholders wishing to exit or a lack of capital investment to expand the company to meet market needs. However, when it finally comes to selling many lack a clear strategy to maximise the returns.

Bayleys Real Estate’s head of tourism, hospitality and business sales, Paul Dixon, leads a team of brokers who sell businesses for clients throughout New Zealand. He says owners need to consider many things when preparing a business for sale, but one of the most important is to become the coach rather than the captain.

“The most challenging business to sell is often one which is overly reliant on the owners for its success and where much of the knowledge, contacts and power base resides with them.

“Empowering staff to make decisions and feeding them information which makes them excited to be part of the business's future will go a long way towards ensuring a successful sale.”

Expert support and advice is also vital. “Business owners will be used to seeking out advice from the likes of lawyers, bankers and accountants, particularly around the operational and day-to-day aspects of running their business.

“These professionals also have a role to play when selling – but in any sale, engaging the sales and marketing expertise of an energetic and experienced broker is the key to a successful and profitable transaction.”

The following tips can help you achieve the best possible price from the sale of your business:

1. It’s a sale – be active

Being too passive is one of the biggest impediments to selling your business. The best buyers are often not looking to buy; they cannot be counted on to come looking for you. Buyers need to be sought out, and a seasoned business broker with established networks of purchasers will be well placed to help you find them.

2. Have a forward looking valuation and sell the future

The most commonly applied valuation method for private companies is to assess the past three years' average profits and look to achieve a return within four to five years. That assumes there’s no value in future potential. But purchasers buy a company's future. True value is about what the business will look like under new ownership, once a buyer applies their skills and efficiencies and opens it up to new markets and customers. The best buyer is often complementary to your business.

3. Choice is power

The most important requirement for a profitable sale is to have a choice of purchasers. If there are a number of interested parties you will be in a position to dictate the terms and price. If there are not, then a single buyer will have more control – so it’s vital that you’re casting the net as widely as possible to attract buyers.

4. Look at all options

When seeking out potential buyers, make sure you think outside the square and look beyond your competitors, and outside the sector in which you operate. Some of the best buyers come out of left field and are a surprise to the seller.

5. Look overseas

Whether your company is small or big, always look for some interest from overseas. A buyer from offshore will sometimes pay a premium. Even if you end up selling to a local purchaser the presence of an international bidder can have a big impact on local bids and potentially lift your sale price. Bayleys are a dominant force in offshore markets, especially Australia, Singapore and Asia. Its association with international partner Knight Frank can enhance potential in many quarters not reached by other brokers.

6. Prepare to negotiate

Selling your business is about both marketing and negotiating. Deals are made or broken during negotiations so you need to be prepared. This includes anticipating questions and objections and knowing your alternatives and fallback positions. As experts in their field, Bayleys brokers negotiate on behalf of clients, working on the strengths and potential of a business so as to get the very best price.

7. Stick to the process

The most successful business sales follow a strategic, structured path. This should include selecting the correct appraisal methodology and reviewing your company; creating a marketing strategy to reach all potential buyers; identifying and qualifying all potential purchasers; negotiating for the best price; managing due diligence; and the completion of contracts, settlements and handover.