The Road to Retirement Part Three: Selling Your Business

Selling a business is how some people unlock a large portion of their retirement fund.  

However, unlike dealing with property, a business is more complicated to sell. Businesses have many moving parts to maintain meaning it can take much longer to sell than a house.  

People often underestimate how time consuming the process of selling their company can be. As a result, they do not put enough planning and thought into getting their business ready for sale before it is put on the market.  

There are a number of implications because of this, including increased costs and loss of value if there are issues with the business that have not been identified and addressed prior to sale. Purchasers can often use problems they find to drive a “hard bargain”. 

It is key to plan early and get a business ready for sale well in advance of when you are going to sell it.

It is also important to work out your target market and make it easy for a buyer to make a positive decision to buy.

Here are the key areas to focus on in order to prepare your business for sale and to ensure it is a compelling proposition for someone to buy: 

Financial statements

Make sure your financial statements (profit and loss statements, balance sheets, and cash flow statements) are up-to-date and accurate. Buyers will want to see at least 3-5 years of financial history. 

Organise your business records 

Make sure all legal documents, contracts, customer agreements, leases, and employee records are in writing, well-organised and accessible. This will make the due diligence process smoother for potential buyers. 

Enhance business value

Well before you start the sales process, identify ways to increase your business value before selling, such as improving profitability, reducing expenses, diversifying your customer base, or increasing the period that your business can lease its premises. 

Identify who your best buyer might be

It could be your children who have been working in the business, senior management, or other shareholders. Also think about other businesses in the same – or similar – industry who can ‘bolt on’ your business to theirs. 

Consider hiring a business broker – an expert in business sales can provide very valuable help if you are going to generally market the business.

Shareholders Agreement 

If you own the business with others, check the terms of your shareholders agreement (if you have one) to see if there are any handbrakes on your ability to sell, or processes that you have to follow.  If you don’t have a shareholder’s agreement, but are in business with others, then get legal advice early about what your options could be.

Negotiations  

There are always negotiations that are involved that take longer than you would expect. Be prepared to negotiate with potential buyers regarding the sale price, terms, and conditions. Consider the tax implications of the sale and explore different deal structures (e.g., lump-sum payments, or earn-outs). 

Take your time 

Don’t put yourself under pressure with time frames if possible.  The more you have to sell, and in a shorter amount of time, the more you put yourself into a position where you are likely to accept less than you could otherwise have achieved if you weren’t in a hurry to sell.

Plan for the transition  

Develop a transition plan to ensure a smooth handover of the business. This may involve training the new owner, retaining key employees, or staying involved in an advisory capacity for a set period. 

Consult with professionals 

Work with professionals such as financial advisors, accountants, attorneys, and business brokers to ensure the sale is handled correctly and legally.  With larger and more complex businesses, completing a “reverse due diligence” (where your professionals fully review your business as if acting for a purchaser) can help identify and clean up any issues that might affect your business. It can also help add substantial value to your business and make sale much easier.

If selling your business is part of your plan to give you a nice head start on your road to retirement, then preparation is key. 

For advice and help with selling your business, retirement plans, wills, trusts and EPAs, contact Anthony Kuran on 09 306 0611 or [email protected] or Renee Jensen on 09 306 0629 or [email protected]