Craig McIvor: To sell your business for the best return, try thinking like a buyer

For many New Zealand businesses, it is time to leave the ring.

The body punches are starting to take their toll. Low demand, a slow recovery, continuing regulation and compliance costs and a high dollar are forcing many business owners to sell.

In some cases the funding required to take advantage of new opportunities or even moderate seasonal growth is simply not there. They are caught in a morass between heaven and hell, where they can see the recovery ahead, but know they do not have the resources or the will to get there. Business owners are good barometers of future trading conditions and if they do not see a bright future, then a sale may be the only option.

The decision to sell a business should not be taken lightly, but if you do decide to go this route, be committed to the sales process. There are no halfway houses when you intend to sell a business. Treat it like a project and give yourself objectives in terms of when you want to make a sale, the price you want and your ongoing involvement in the business after it is sold.

Selling a business is no different to selling any product or service and it is not surprising the steps to do so are the same.

Value proposition

Like every sales process you need to have a good value proposition and you also need the elevator pitch - an overview of your business in 25 words or fewer.

You need to be thinking about potential buyers and what they are interested in. Buyers are interested in risk, exit strategies and return on investment.

The best question to ask yourself is: "If I was buying a business what would I need to know?"

Other questions to consider are: What are the key success factors of the business? What is the track record of financial performance? What risks are inherent in the business? What is the company's future strategy? How much money will I need to invest? What sort of return will I get back over time from my investment? How will I get out of my investment?

Use this as a benchmark to ensure you can answer these questions for any potential buyer. There is a premium in the sale price for businesses with good governance processes - such as regular board meetings - as it shows the business is managing itself and the risks within the business.

Get this information together and put it in a form that can communicate these aspects clearly to potential buyers.

Target Market

Sales of businesses occur when the right buyer meets the right seller. Like every other product, it is pointless using a scattergun approach when the business will only be of interest to a particular target market. From experience, the buyer will tend to be someone you already know.

By asking yourself the simple question "Who would be interested in buying my business?" you can come up with a list of 10 to 15 prospects immediately. Industry is vertically and horizontally orientated, so your business may be interesting for your competitors that operate in a similar fashion, or suppliers - even your own customers.

There is a lot you can do yourself. Identify potential buyers, especially those who can achieve synergistic or "economy of scale" benefits from integrating your business or who operate in the same industry sector. These businesses are likely to pay more as they will understand the key drivers of your business.

Once you have your list of prospects, contact them directly and get them to sign a confidentiality agreement before sending off the information on the business that you have collated.

The document should include information about the business, a closing date for offers, and contact details.

The Close

Put a time-frame on the sales process. Just like an auction for a house, it creates a date when you know a sale will take place. This immediately qualifies buyers and you will find out quickly if they are really interested in buying your business.

It is natural for buyers to want to do due diligence and to look closely at accounts and operations. Be as helpful as you can, otherwise you send subconscious signals that may cause them to believe there are risks you are not telling them about.

All things being equal people buy from people they like, and when all things are not equal - they still buy from people they like. So be nice, irrespective. It is not personal - it is a business transaction.

Naturally, you can use a business broker to help you with the sale process. Often they will ask the same questions outlined here and get you to provide the information that they need. For some owners this may be the best solution.

For others, they may decide to sell the business themselves.

Business owners are typically good salespeople and may have bought and sold many businesses over their career, so this process should be straightforward. Remember, a sale will only happen if you agree to it, so you are in the driving seat.

For many owners, the sales process can seem like losing, like giving up - but it is not. It is the closing of a chapter of their life and the opening of another. This one last sale, if done properly, can realise the value in a lifetime of work.

Many buyers will ask owners to stay on for a period after the sale to ensure business continuity and to reduce risk to the business. If you do stay on, help the new owner as much as you can. Understand that they will be finding their feet and want to make their own decisions. Leave the business with no regrets or ill feelings, as this will help you move on with a clear conscience.

Craig McIvor is managing director of Corporate Management Advice Ltd, which helps NZ businesses with growth strategies (www.managementadvice.org)