By David Newport, principal of Switch Business
An interesting recent business article by Craig McIvor in the New Zealand Herald was titled 'To sell your business for the best return, try thinking like a buyer'.
It raises an interesting proposition for business owners who are looking to sell their business because they are feeling the financial pinch or have taken one too many body blows.
McIvor's premise is that market conditions mean business owners are dealing with low demand, continuing regulation and/or compliance costs and the high dollar - all factors which affect the will of the owner and performance of the business. A sale might be the only option.
His recommendation to treat a sale like a project is excellent advice. Create a value proposition, select and offer to a target market, and then close the deal. All sound advice.
However, there are a couple of areas that could be tricky for the Kiwi business owner; I have observed these during my business sales career.
1.Losing focus on the performance of the business during the process.
For a business broker, one of the challenges of any business sales process is keeping the owner focused on the continued performance of his/her business. A sale can take up to six months from the original conversation to a purchaser's due diligence. A lot can change in the business' performance if the owner hasn't been diligent about ensuring it keeps operating at its past level, which would have been forecast in the marketing of the business.
The owner's thoughts are understandable: the business is on the market, they can relax and mentally move on. Making sure the owner maintains focus is one of the most important functions of an experienced business broker, and an area of risk if an owner is handling all aspects of the transaction.
This can even be the case when an owner isn't involved in the day-to-day operation of the business and only offers governance, because frequently management is a direct reflection of an owner's focus.
2.Offering business to 'like' companies.
Creating a list of businesses that might benefit from the purchase of the business is an excellent idea, but one many Kiwi business owners struggle with. New Zealand is small, and most business owners are deeply concerned with the confidentiality of the transaction. Competitors, and businesses in a similar industry, would offer the most synergetic outcome from the sale of the business - but also present the most risk.
It is a difficult hill to climb for a business owner: to run a process where he controls the flow and level of information required by a potential purchaser, while keeping information away from parties who are merely on a fishing expedition.
It is difficult enough for a business broker with hundreds of transactions behind them, and almost impossible for an owner who might never have sold a business and who also has to concentrate on its performance.
Moreover, it is often a bitter pill for a new owner to know that most of the industry has information memoranda containing the IP and past and future performances of their new business.
3.It is difficult recommending yourself.
The modest, understated Kiwi mentality makes it difficult for a business owner to 'talk up' the performance of the business to a purchaser, and equally hard for a purchaser receive. That is one of the reasons why there is generally a broker (or another third party) involved, to contribute the necessary opinion to position a business for sale.
4.Managing the people and the personalities.
Selling a business is not as simple as a Trade Me transaction. There are multiple parties to deal with and, assuming the business is a good one, all parties to whom it is offered will be interested. There may be as many as 20 or 30 interested parties, each of which has multiple parties advising and asking for information. Do you want to do this yourself?
5.Managing the offers.
A quality business will typically have multiple parties wanting to undertake due diligence. Most Kiwi purchasers will insist on an exclusive due diligence process before incurring costs. When choosing, a seller should bear in mind that it is more important to focus on which potential purchaser is most likely to complete the transaction than simply to go for the highest bid.
David Newport
