Obtain an objective valuation and/or estimate.
There is no point in trying to sell an unrealistically priced business. While there are a range of methodologies that can be applied and compared to arrive at an estimate of value, a good starting point is to consider the business as if it was an investment. What return (ROI) should an investor expect from their capital to reflect the perceived risk of investing in the business versus a relatively risk-free, passive investment? And if you are working in the business yourself, this needs to be reflected in the analysis as a genuine market rate. Don't try to fudge the figures by ignoring your own input.
Financials! Financials! Financials!
A prospective purchaser will generally want to see your last three years' accounts, preferably prepared and approved by an accountant. If you have been taking cash out of your business that is not shown in the accounts, this will ultimately impact negatively on the value of the business. You cannot have it both ways.
Document key systems and processes.
Many owners make themselves so indispensable that if they left the business it would not survive. Prepare a ''manual'' clearly showing how the business works. Also, train and develop relevant staff so that they can provide further cover.
Prepare an itemised list of plant and equipment
.... including a depreciation schedule and any valuations that may be available for more significant items. If land and buildings are also to be sold as part of, or alongside the business, then obtain a current registered valuation. Also, purchasers will want to know how much stock is normally held.
Staff schedule.
A prospective purchaser wants to know about the current staff. Prepare a schedule showing how long have they have been employed, remuneration, and their job descriptions.
Documentation.
Make sure all relevant documentation is up to date and available as copies. This includes things that often help justify any ''goodwill'' for the business, such as supply contracts, patents, supplier agreements, licences, rights and permits, together with any leases, maintenance contracts, warranties and employment contracts. As part of this, make sure that your systems and software are up to date. If you are still using Windows 95 this will not reflect well on the business.
Physical presentation.
You would always try to present a house well if you were preparing it for sale. You need to do the same for your business. All plant and machinery, vehicles etc, even if a bit dated, should still appear clean and well-maintained. Showrooms, offices, factory, yards and other workspaces must be tidy and presentable. And if you are selling the buildings, you should ideally supply evidence of current building Wof, together with an engineer's report. If the purchaser is not overly concerned about these things, their bank and/or insurer will be.
Staff.
You must decide if and when staff should be told the business is for sale. While this is often a difficult issue, it can be counterproductive to keep staff out of the loop. They generally know if something is going on. If managed well, then telling them relatively soon can be positive. And it is always harder to sell a secret.
Sales documents.
If you are selling privately, you will need to prepare an information memorandum (IM). I also suggest having a confidentiality agreement for interested parties to sign before they receive any detailed information.
Private sale or agent/broker?
While selling can be fine if your business is relatively small and simple, you should consider using a qualified broker/agent if your business is more substantial and/or complex and you want to obtain the best price. Most purchasers also prefer to deal with an independent professional third party, instead of the business owner.
• Peter Gale is a former lecturer in commerce at Otago University. He has held a number of high-profile marketing management positions and mentored many small businesses, and is now the commercial and investment business manager at Darling Realty REAA 2008 (formerly Century 21) Dunedin.
