For many SME business owners, all too often, the right planning and preparation to make a business ‘sale-ready’ has not been implemented and when the decision to sell is reached the business is not ready to complete a transaction.
To maximise business value and achieve a successful sale, the following 5 key items need to be considered well before deciding to sell your business.
1. Have a clear Value Proposition
Ensure your business has a clear and easy to understand value proposition.
An effective value proposition demonstrates what your business can offer to a prospective buyer and how your service or product fulfils a market need and gives you a competitive advantage. Understanding your value proposition goes well beyond your business’s financial valuation.
This is the starting point to any sale campaign.
2. Ensure your business’s earnings are sustainable
Sustainable earnings not only maximise your business’s value but also provide potential buyers with a level of certainty.
It is critical to eliminate any key man risks on earnings to improve the valuation of your business. A primary concern for any potential buyer of an SME business is the business’s earnings’ dependency on the business owner.
3. Long-term material contracts
Locking in or exiting long-term material contracts can have a significant impact on the value of your business.
Take the time to exit or extend material contracts prior to starting your sale campaign. A good starting point is to review your leases, supplier agreements and customer contracts.
4. Have clear documentation and be data room ready
Take the time to prepare your documentation in advance. Being prepared will ensure you are ready when a potential buyer engages due diligence advisors.
As the business owner, you will be expected to respond quickly to questions and objections and provide clear and concise information about your business. This will not only improve the probability of a sale but also speed up the sale process.
5. Externally prepared financials
Have your business’s financial statements audited by a reputable auditor. This will provide potential buyers with a higher-level of confidence and certainty. If this is not practical for your business, clear and accurate externally prepared financial statements are highly recommended.
To speak to one of our team about how to best prepare your business for sale, please contact Phillip Spry on 03 9602 3355 or Phillip.Spry@mawson.com.au.