What to Consider When Selling or Buying a Business
There are a multitude of reasons why individuals or businesses buy other businesses. The most common reasons to buy a business would be to increase revenue, eliminate competition, and strengthen the strategy of a business by acquiring specific licenses, products, client bases, key skills and assets.
There are several reasons why an individual may choose to sell their business. This ranges from purely financial reasons to lifestyle factors acting as catalysts. The most prominent reasons for selling a business would be retirement, the health of the owner, new opportunities, stagnation, distressed sales and to extract hard-earned value.
Whatever your reason for selling your business, it is always useful to have a professional on board to guide you through this often complex process and protect your interests.
In selling or buying a business, it is important to consider the assets that are for sale, key clients, client and supplier agreements, guarantees, work in progress, inventory, systems and processes, and staff. In preparing a business for sale at the maximum value, it is important that, as a business owner, you focus on specific key elements in the running of your business.
These core elements include:
Increasing your recurring revenue
Decreasing the cost of operating your business
Building loyal client relationships to business systems – not people
Differentiating your expenses from the business’s
Paying yourself a salary based on a commission structure similar to that of an employee and retaining the balance as business profit
It is highly recommended that the seller of a business consults a specialist as early as possible whilst negotiating the sale of a business to ensure that the seller's objectives are properly set, and the seller's rights are protected.
Your SFP advisor and the specialist team could assist the seller in realising the following benefits.
Implementing an exit strategy – Many business owners rely on the sale of their business to fund their retirement or other future business opportunities. By knowing the fair market value of a business, the business owner would be able to maximise the profits from the sale by being able to predetermine when to put the business on the market and, how to best determine, structure, and negotiate the selling price.
Obtain additional financing and growth funding – Should your business need additional financing to either fund growth or assist negative cash flows during difficult times, you'll likely be seeking out a private funder or commercial lender. Both these parties will require an independent business valuation to be obtained to understand the financial value and market potential of the business. An independent business valuation can assist the business owner in obtaining competitive financing or funding, as well as providing a valuable metric with which to measure growth.
Support estate planning and risk management – Most business owners have a large portion of their net worth tied up in the business they own. Typically, these highly non-liquid assets can make estate planning difficult and impact the financial legacy and responsibility a business owner leaves behind for the beneficiaries of his or her estate. By obtaining a fair market value for the business, one could potentially mitigate certain risks relating to tax liabilities and transfer duties. This is ideally done before the passing of the owner.
Do you also need any of the following services?
Business advisory support/Accountability partner?
Business finance?
Banking facility audit?
Family business advisory services?
Help with the buying or selling of a business?
Speak to your SFP financial advisor who will introduce you to the designated subject matter expert on the SFP enterprise panel who would be able to address your specific business need or requirement.