Sell Your Business Faster . . . By Understanding What Your Buyer Wants

Don’t wait until your business is on the market to do your due diligence. If you do it early, you’ll know what potential buyers are looking for and that will help you sell your business quicker, for the best price.

That’s the advice from David Irwin, Client Director of Kelly+Partners Inner West.

“The earlier a business owner has due diligence or a business valuation performed on their business the better. Even if the business owner is not in the market to sell, this is the quickest way for them to understand the true value of their business as it stands,” said David.

According to David, that is often a hard reality for the owner to digest, as they are biased to believe their business is worth a lot more.

Maximise the Uplift

“This is then an opportunistic time for the owner to understand why their business is not worth what they think it was worth and for them to take some serious action to start building a great business to maximise the uplift on the eventual sale,” said David.

“Ultimately, the value of any business comes down to how long the profits will continue and the level of certainty of this.”

The important factors to consider when preparing your business for sale are growth and profitability, business size, established revenue, market stability and competition.

“These factors are very important. The business must make a profit in order to survive and thrive. The business should always be looking to grow, not just for the sake of growth itself but for the opportunities that growth brings, such as being able to reward and retain its people and to be able to provide a better customer experience,” said David.

Understand the Market

“Established revenue provides a scoreboard of how the business has been performing over the years – i.e. growing or dying. I think it’s very important to understand the market that you operate in more so than the greater market. It’s important to know who your competition is but don’t be obsessed with them. You need to be obsessed with your customers and making sure you are providing what they want.”

One of the hardest things to do when selling a business is to take yourself out of the equation. Most business owners are personally invested, which is only natural, considering the hard work they have put in and probably the personal sacrifices they have made. But, says David, that’s not what potential buyers are looking at.

“You need to build a ‘machine’ that generates a profit which provides good cash flow to the owners and is not heavily dependent on the owner being in the business.

Perfect Your Systems

“This requires building great systems and processes that are actually documented at every level and having the right people on the bus in the right seats. First-time buyers generally are not looking to build a business; they are looking to buy a business that has already been built so that they can continue running the systems that have been established.”

Whilst perceived potential is important to some buyers, most will focus on the historical financial information as “it is tangible to a degree and does not bank on the future potential as this is considered unknown territory unless the buyer is very experienced in that industry and has a good understanding of the future factors that are influencing that industry.”

It is also imperative to understand the difference between profit and revenue as different buyers have different growth strategies.

Profit and Cash Flow

“For example, the buyer may just be looking to bolt on or absorb the seller’s revenue into their business without taking on the expense commitments especially if the buyer is already established and has the infrastructure in place. If taking on the whole business then profit and cash flow become key,” David said.

Potential buyers tend to fall into three categories: strategic, financial and internal. They all have different priorities when searching for a business to buy so it’s important to tailor the information you provide to what is important to them.

At the end of the day, David says honesty is still the best policy when selling a business.

“From a value and legal perspective, this is the only way to do business.”

So, doing your due diligence at the beginning will help you better prepare and, subsequently, sell faster.

Contact David on (02) 9818 2920, 0415 574 797

or email [email protected]

David Irwin

A founding partner of Kelly+Partners Parramatta – and now Client Director of Kelly+Partners Inner West – David has over 15 years’ professional accountancy experience, specialising in business and personal taxation, structuring and superannuation. He advises clients across a wide range of industries with a particular focus on small business capital gains tax and GST.

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