KEY POINTS:
What are some of the things I need to think about before putting my business on the market?
Probably the most important thing to consider is the transferability of the business. Frequently with businesses that are started by an individual, the knowledge and the contribution of that business rests with that owner. Intellectual property is just one aspect of it. A business may have made $200,000 last year, but if all the knowledge is locked up in the owner's head and his relationships, then it doesn't automatically mean that business is going to make $200,000 next year. In fact the likelihood is that it won't. This is probably the single most important thing: the owner has to remove himself from the business back into a governance role so the business becomes an entity and it takes on a life of its own and so becomes transferable.
What are the factors in arriving at a reasonable price for a business?
No matter what the business, there is always risk attached. If I can demonstrate to a new owner that a seamless transition will take place and the $100,000 profit of last year will be a $100,000 profit next year, and it's the foundation on which that business will develop, then that business has got a value. If that business has some intellectual property - software or a design aspect, or something that makes it unique which is protected by trademarks or patents that cannot be regularly copied - then that business will have a greater value because the future of that business is guaranteed.
What sort of information does a business broker need to have?
I need things such as the past three years' profit and loss accounts, a copy of the balance sheet, a copy of the depreciation schedule. I'll want a copy of their internal accounts, management accounts from the last balance date until now, a copy of the lease, a copy of their employment contract, a list of staff, a delegation chart - a layout of the business, how the staff are structured. I'll need some sort of idea about what kind of protection they have against competitors, where they sit in the market place, and then I'll want to look at the past two years' monthly sales.
Is the information given to just anyone? What if my top competitor takes advantage of a sales process to get information? How is confidentiality maintained?
It's a very managed process. Before I will supply any information about a business whatsoever, I'll want to know who I'm dealing with. I'll want to know what their background is, how much money they've got, their ability to operate a business like this. I will find out this information before I'll give them any information whatsoever. If it's a competitor, I'll go back to the vendor and tell him "We've had an inquiry from a competitor, how do you want me to handle it?" On the one hand it might be someone just fishing for information, on the other hand it might be the ideal purchaser for that business. Before they can access any information they have to sign a non-disclosure agreement. One of the biggest concerns for owners of the business is confidentiality - they don't want their suppliers to know they are considering selling, they don't want their customers to know they are considering selling, they don't want their employees to know they are considering selling. It's my job to ensure that I get all the information about that business, that I source a buyer and negotiate a sale without anyone knowing anything about it. If it's a business that has a greater degree of confidentiality about it, I won't release any information until I'm sitting down in front of somebody.
