Business mentor: Good grooming essential part of sales process

Q: I am considering selling my business and retiring. I have no idea where to start the process and what to do to make sure I get the best price when I do sell. What steps do you suggest I take so I can maximise my return?

* Small-business sector specialist Sarah Trotman asked Ross McLauchlan, of Link Business Broking, for some advice:

A: Most owners contemplating selling their business have little understanding of the often complex nature of the process.

From grooming or preparing the business, through to settlement and handover, a multitude of steps should be undertaken to ensure the business is presented in a manner that will highlight its positive features and, therefore, achieve maximum sale price.

I cannot over-stress the importance of ensuring all information is factual and there are no misrepresentations or inaccurate claims made, as a raft of sturdy legislation exists to protect the buyer.

During the selling process, most vendors want to keep the fact that the business is on the market confidential from customers, suppliers and staff.

This presents a logistical dilemma in trying to attract a buyer from as big a pool as possible, while keeping the precise details of the business confidential so as to ensure it is not readily identifiable as being on the market.

In addition, a well-written advertisement generally attracts a lot of calls. To screen inquiries, qualify prospects and to identify those who genuinely have the funds available to buy the business and the skills to run it, is a time-consuming exercise.

Trying to run a company while doing all this can also be detrimental to the business.

To assist those contemplating selling, Link Business Broking has published an in-depth and comprehensive guide to the selling process, from grooming the business through to settling and handing it over to a new owner.

The publication is 24 pages and includes a step-by-step guide that explains the complexities and identifies the pitfalls and mistakes often made by owners preparing their business for sale.

Key steps include:

* Undertaking a valuation appraisal.

* Creating a tailor-made, marketing programme.

* Writing an information memorandum.

* Qualifying buyers.

* Looking at ways to add value to goodwill.

* The due diligence process.

One of the most difficult, yet important, aspects of selling anything is reaching a fair market price.

Aside from several appraisal methodologies, such as an asset-based appraisal or a multiple of ebit (earnings before interest and tax), the market will ultimately determine the price.

The results of recent sales of similar businesses, of a similar size in similar industries, are extremely useful in identifying a realistic price.

The final sale price achieved is so often related to the preparation of the business in the first instance and the quality of the information that is presented to prospective buyers.

A complimentary copy of Managing the Sale of Your Business can be obtained by phoning (09) 579-9226 or following the email link below.