How do I sell my business?

We provide some guidelines on how to get your business sale-ready.

By Kobus Oosthuizen

Any item presented for sale, whether new or used, is normally ‘dressed up’. It is a fact that polished and neatly packaged goods attract more attention from potential buyers. This is especially true of used merchandise; the way an item is presented is seen as an indication of how it was looked after by the previous owners.

Selling a business is much the same and although the real value of a business is in the numbers rather than its physical experience, it is still important that the assets of a business appear to be looked after when presented to potential buyers.

There are, however, a number of other issues to consider and attend to prior to putting your business up for sale.

Profile your business

Make the effort of writing up no more than a single page on the history of the business, detailing how and why it is the concern it is today. Provide information on when it was established, by whom and how much it cost to set-up. Also describe any ownership changes and changes in shareholding, if applicable, and the value of such transactions.  

It would be useful to describe the growth areas in the business and where you believe the opportunities are.

Conclude the profile with your reasons for selling the business.

Availability of financial and other information

Businesses as going concerns are valued on the profit and/or cash flow they generate, so be sure that you are able to backup your valuation with reference to the most recent audited financial statements and management accounts. You should be prepared and able to explain any variances, unusual trends or extraordinary items in the financial reports. If not, potential buyers may be inclined to doubt the integrity of the information presented.

Have copies of all the existing agreements held in the name of the business at hand for perusal by the buyer. These would include:

·         The lease agreement,

·         The franchise agreement,

·         Equipment rental agreements,

·         Employment agreements, and

·         Subscription agreements for security, advertising etc.

Know the liabilities of the business

Liabilities not transferred with the business as part of the sale and purchase transaction have to be settled by the seller. It is important to understand the magnitude of these liabilities as they will affect the purchase price and/or the proceeds realised from the sale. Examples of such liabilities are:

·         Accrued utility costs, as they are normally charged in arrears

·         Loan liabilities

·         Supplier accounts

·         Royalties charged on historical turnovers

·         Accrued leave pay and other entitlements due to staff remaining in the business

·         Audit and accounting fees relating to the period prior to the sale, and

·         VAT, PAYE and income tax obligations as at date of sale.

Valuation

In the April/May 2012 issue of SA Franchise Warehouse we published an article discussing the various business valuation methods and the most suitable method to be applied, depending on the circumstances of the business.

Do I use an agent or not?

We believe that agents have a valuable role to play in facilitating sale and purchase transactions. Employing an agent means the seller can continue to focus on the business while the agent deals with all incoming queries. It is important to attend to every incoming query, regardless of how negligible it appears, as serious buyers often don’t announce themselves in a forthright way.

However, before you appoint an agent, consider the following:

·         Ask for references from buyers and sellers he/she has dealt with in the past.

·         Have the proposed sale and purchase agreement that the agent intends using, scrutinized by an attorney. While an agreement would typically protect the interests of the seller, it is also important to ensure that the agreement is legally compliant in all aspects so as not to jeopardise the transaction.

·         Make sure the agent understands what you require of a potential buyer. It is the agent’s job to ensure that any potential buyers he/she introduces has access to the necessary resources to procure the business.

·         In our view, exclusive mandates are preferred, but it is imperative that you satisfy yourself with regards to the professionalism and background of the agent. Exclusive mandates should be limited to three months, as this is sufficient time for an agent with a database of potential buyers to introduce them to the opportunity.

In conclusion, there are two valuable tips when selling a business:

• Don’t get distracted. Keep focusing on the operations of the business and maintain the status quo. Staff, customers and service providers become sensitive when an ownership change is looming and you don’t want this to affect the performance of the business.
• Don’t hand over the operations of the business to the buyer until the agreement has been duly signed and the purchaser has performed in terms of the conditions agreed upon before the takeover date. If there is an exit clause available to the purchaser, make sure it is reasonable. The purchaser should not be able to hand back the keys just because he had a bad day. A ‘fake’ turnover will harm the business and be a serious setback to your attempts to realise your business.

SA Franchise Warehouse

www.safw.co.za

kobus@safw.co.za

+27 12 661 8678