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Building, preparing, organising your business for a sale.
All businesses only have one of two destinations; sale or closure! Globally, 94,6% of all businesses started never get sold. Very few ever do get sold and this matters because for us as entrepreneurs, the sale of our businesses is our pension, retirement, legacy and reward. The vast majority close down or, even worse, are disingenuously passed onto the ‘next generation'. This could be management or family and the motivation is mostly due to the founder needing some kind of annuity payment to sustain and survive their lifestyle. The traumas that mostly ensue are vast and include disappointment by the ‘new' team on how poorly considered the business is, how weak the performance is and their sense of being sold down the river creates animosity.
This X-Factor is focused on the notion that forewarned is forearmed and that, as entrepreneurs, it's our responsibility to ensure that we guard our future by the actions we perform today. Three distinct pieces – Legal, Financial, Trade – with experts in all areas, will hopefully deliver the key issues that we should consider today for the sale tomorrow. After all, building our success is our job and nobody else's!
Let me be clear on my position since sensitivities are often high when the idea of build to sell is promoted. If there are only two destinations for every businesses in the world, build to sell has to be your strategy. As to when you want to sell and when is the right time to sell, that's the debate of a separate topic in its own right.
What are the biggest legal considerations that we need to consider in preparing our businesses for sale. There are many but a framework that allows you to start thinking about what you need to do is what I was looking for. I found that answer in Bartlett Hewu from Hewu Inc. Attorneys.
I believe there is value in writing up a "what's in it for you, the buyer" plan when preparing to sell your business. In that plan, talk to what makes your business special. That plan will also have a forecast on your numbers and include the assumptions you make in support of those numbers.
Preparing a due diligence file, containing all the evidence you need to demonstrate and support your plan leaves the buyer with a sense of confidence.
For many entrepreneurs, the early stages of start-up saw us using our personal finance and credit facilities in our names to get the business off the ground. Very few entrepreneurs allow for a transition across from personal to business to happen cleanly and neatly.
Many live, in part, in their businesses. Yet, you cannot have your cake and eat it. When it comes to a sale, your historical numbers, those reflected in your audited financial statements suggest the rue performance of the business. It's these numbers that impact your valuation irrespective as to how they came about.
Clean books mean clean, maximised performance. Lived in the business books, suggest for the same business, poorer performance. Finding the best approach is what I asked Shane Prinsloo, co-founder and director of BPAG…
It's all in the number and the numbers, if properly generated don't lie. If this is the case, build your bookkeeping and accounting capability, preferably through a service provider who does this as a speciality, properly. Clean numbers, properly prepared make for clean sales. Uncertainty in numbers actually reduces the price, leads to tougher negotiations and lower valuations. When you intend selling, set a time line and make sure that you have a long enough period to clean up your books.
Where do you begin in getting your business sold? I'm of the view that a business built into an Asset of Value™ is not sold, its bought. The power of that transaction favours you, the seller and not the buyer. This makes you a price maker and that is rare. Mostly, businesses are put up for sale. How you do this and get it right is the question I put to Brynn Janeke from Aldes Business Brokers.
I believe in using third parties to negotiate a sale of your business. As a founder and builder of your business you are so close to it. You see potential in so many ways and plays that new blood could bring to life.
It's a very emotional process and in that, you will find yourself being very easily offended during a negotiation on price. If you are ready to sell and you have built your business well, let an objective third party facilitate that sale. It's what they do day in and day out. It's their profession! You sell once, maybe wice and simply don't have the objective experience to get it done nearly as cleanly.
We want The X-Factor to be useful to you. To ensure that it is, we need your feedback. What's relevant and important to you? What expert insights do you want us to get for you? Who do you want us to speak to and about what? Every X-Factor will have a small survey at he end asking you these questions. It's your content so tell us what you want!
Using experts in SA, we will tackle 3 issues per edition. Send in your requests!