Systemizing Your Business, Getting Ready for Sale
Has it ever crossed your mind, as someone who is self employed, that there might come a time when you need to, or have to sell your business? Many entrepreneurs arrive at this proverbial fork in the road somewhat unexpectedly and must look to sell, sometimes immediately, and as such often have a disappointing outcome. The best way to avoid this is to start preparing your business to be attractive to buyer, even if you don’t intend to sell in the immediate future.
In this interview with Kevin Hight, an experienced commercial real estate agent and a member of the board of directors for McDonald Real Estate, he provides insight around what buyers need to beware of before purchasing, and what owners need to be aware of before putting up “For Sale” sign on their business.
Kevin begins with some advice around being a first time business owner himself, moving from Palmerston North, starting a prosperous shoe shop in New Plymouth, and then transitioning to commercial real estate, where he is experiencing a notably successful career: “Looking after your customers is hugely important especially in a small community. Customer service is king. Looking after your suppliers and staff thereafter.” Kevin also mentions the importance of systemizing your business, and he discusses the following aspects, which agents take into consideration when evaluating a business.
- A Good Database – is the company active online, has communication with their customers, and ideally 80 percent of them are regular or there is some form of renewable income.
- Good Systems - having the data to assess the value of your business at any one time. This includes contracts, purchases, how you manage your sales, and conversion rates for example.
- Good profits –reliable profits and the opportunity for super profits, which is when the owner receives income and has enough to invest in the business itself.
Kevin also points out the most common question that arises from owners who wish to sell their business is How much time is it going to take? Deciding the right time to sell as well as having a solid plan in place to make this a successful transition can pose a significant challenge.
Here are some questions to ask:
- What makes your business attractive to buyers?
- Timeframes to make the sale
- Is there room for expansion for new owners?
“Would you buy it back in the state it is in today at the price you are asking?” is another key question to consider when selling a business, Kevin says. It’s also important to consider that a business, which has the potential to be profitable, does not necessarily increase the price tag. Three to five years of records from an accountant and a strong performance record is what interests buyers. It takes time to collect this information, and therefore having a succession plan in place prior to discussing a sale can lead to a more desirable outcome.
Knowing all of your options when moving into a position to sell, purchasing within a familiar field of business and understanding processes like due diligence, what it means to buy strategically and progressive concepts such as “earn out” are helpful when framing the bigger picture.
No thanks I’m just looking – Harry Friedman
You can get in touch with Kevin Hight by emailing him at email@example.com