InsightsTips for selling your business in 2022
Selling? Tips to get your business ready
There are many reasons for deciding to sell your business, check out these tips for making sure you and your business are ready:
Understand your “Why?”
Be clear as to why you are selling. As you move through the sale process, knowing your why will bring clarity to your decision making.
What’s your structure?
Your business and personal affairs will be structured in a certain way, we recommend getting some good advice about structuring your business in readiness for sale, ensuring the flow of funds post-sale enters your personal finances in a tax-effective way suitable for your future, ie retirement, further business ventures, etc.
The best way to be ready for your potential buyers’ DD process is to do your own DD on your business first. We recommend doing this as one of your first steps as it can unearth some undesirable elements that will need to be resolved before you go to market.
Basically, the Due Diligence will cover off on 2 main areas:
- Balance Sheet – all items on the balance sheet need to be validated and supported by third party evidence
- P&L – validation of P&L transactions including sampling of invoices and bills and tracing them from beginning to end – requisition, PO, Invoice, Payment. A review of customers, suppliers, employees and contractors and any associated agreements with them.
Here are some practical examples of doing your own internal DD:
- Inventory – do a stock take and ensure all old, damaged and unsaleable stock is written down
- Real Property – get a valuation done
- Documentation – collate your contracts, leases, employment agreements, insurance policies, internal policies and procedures, etc
- Payroll – are all your employee liabilities on the Balance Sheet? Annual leave and LSL entitlements and any other vesting entitlements should be taken up and make sure they have the appropriate on-costs added (super, payroll tax, workcover etc).
- Tax & regulatory fees/levies – are all your lodgements up to date and paid on time? GST, FBT, Income Tax, etc
- Debtors / Creditors – What’s the state of your debtors and creditors? In good shape? Anything old, not collectible, in dispute? Sort them out!
- Related Party dealings – understanding the impact of related party transactions, their nature, and what they mean post sale is critical.
Budget / Forecasts
The buyer is buying the future cashflows, not the past, so if you haven’t done a forecast, do one and do it well. Forecasting is not solely an accounting function! Look at your historical run rates, but also get input from the front end of your business.
As you track along month by month, measure the business against your budget or forecast data. Make notes about variances and keep them. You’d be surprised what you forget over time and written monthly variance reports make great workpapers in the DD process.
Do your people know you’re selling? What will be their reaction? Any personnel key to the business? Any sacred cows?
Skeletons in the closet
Bring them out, dust them off, and get ready to share them. They’ll come out anyway, better to be in control the narrative.
Understand what your business is worth & who your likely buyer will be
We recommend engaging a valuer to properly value your business. Go in with your eyes open.
Manage your expectations & don’t get distracted
Selling a business can take years. Literally years. If you expect it to happen in 3 months you’ll be disappointed. If you take the time to properly ready your business for sale, this will definitely help, but the timeline will be largely driven by the buyer and market conditions.
Selling a business and going through due diligence (sometimes multiple DD’s) can take its toll. It’s important to stay focused on the business and maintain business performance through any sale deal. No point getting through the process only to be screwed down on price at the last minute due to under-performing.
Engage an advisor who has M&A experience
Having someone on your side with experience in these sort of deals is critical. Understanding the various ways deals can be structured can give you options.
Here at Mage, we have successfully facilitated many deals. We can help with getting you and your business ready, advise on your structure, assist with negotiations, review legal documents, provide taxation advice, and basically be your “right-hand man” from beginning to end.
Call us today to chat about your sale deal.
“The best way to be ready for your potential buyers’ Due Diligence process is to do your own Due Diligence on your business…as it can unearth some undesirable elements that will need to be resolved before you go to market.”
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Founded by Michael and Ashley Garrone, Mage Advisory is a specialist business and accounting advisory firm, committed to sharing their expertise every day for the benefit of their clients, their profession and their greater network.
This publication is © Mage Advisory and is for general guidance only. Legal and financial advice should be sought before taking action in relation to any specific issues.