March 2, 2011 – RSM Bird Cameron provides 10 top tips for small business owners planning to sell their business.
Many baby boomers may be getting to the stage of considering retirement. Before retirement dreams can be realised small businesses must prepare their business for sale.
Andrew Graham, director, business solutions, RSM Bird Cameron, said, “While running successful small businesses often comes naturally to business owners, preparing that business for successful sale is often outside the realm of their expertise.
“Before considering selling, business owners need to assess the current market forces to determine whether it is a buyer’s market, where vendors are competing to attract acquirers or a seller’s market, where acquirers are competing for deals, to see if it is the best time to sell.”
RSM offers the below tips for baby boomers ready to sell to ensure they make the most of the opportunity.
1. know what you are trying to achieve – the motivation behind selling a business can vary from finding the right acquirer, securing the best after-tax result to enabling the owner to retire. No matter what the motivation ensure that the acquisition provides security for your staff, family and ultimately achieves your goals.
2. do your research – make sure you know who your potential buyers are including competitors, private equity groups, members of the management team or your children – and how you find them. Considerations include how to market, what makes your business attractive to buyers to maximise sale price and how much you should ask for.
3. prepare in advance – rushing to sell will reduce your chances to maximise the proceeds of the sale.
4. conduct a valuation of your business – there is no absolute certainty provided by any valuation methodology but it remains an important part of the process by giving you a reasonably arguable position in a negotiation. It helps that your offer is credible and can be used as a business ‘health’ check for business owners.
5. make sure your business is successful – businesses can be considered successful if they employ the right people, deliver the right products to a loyal customer base in a growing market, develop the right processes and systems and conduct the business within an environment of corporate governance and accountability.
6. realise how long it will take to sell – start planning for sale at least three years in advance to ensure you maximise the business value for sale. Cleaning up your business for sale may take up to a year and it can take another year to find a buyer and complete the deal. Giving yourself extra time means not risking having to accept less than favourable terms.
7. ensure you have good financial records – good cash flow is a strong selling point so work on generating sales income. Clean up your business’ financial affairs and record keeping including getting non-business assets, such as cars, off the balance sheet, cleaning up owners loan accounts, making sure inventory counts are accurate and organising contracts with customers and major suppliers.
8. sort out your property lease – if you own the building as well, formalise your lease arrangements and ensure that a commercial rental is paid.
9. take advantage of tax concessions – structure your sale contract to maximise your tax position and take advantage of small business capital gains tax (CGT) concessions. Don’t wait until the deal is done or you may miss out.
10. enlist the help of your accountant – your accountant can assist in the implementation of strategies to maximise your short term business profits in the lead up to selling, help in the preparation of documented business systems and organisational charts, provide cash flow projections and business valuations and provide assistance with tax impacts and tax planning. Ultimately your accountant can be a sounding board that is objective, independent, experienced, well resourced and most importantly on your side.
About RSM Bird Cameron
RSM Bird Cameron is the largest mid-tier accounting firm in Australia and offer a full range of specialist advisory services, including business consulting and advisory, assurance and advisory, taxation consulting, corporate consulting and turnaround and insolvency. RSM Bird Cameron is a core member firm of RSM International, the sixth largest network of independent accounting and consulting firms in the world.