I’m often asked the best way to sell a business. There are two key components at play in the sale of a business: structuring the transaction and positioning the business to the market. Both elements are critical and can significantly impact your result.
Structuring the transaction covers areas such as pricing the business, the terms and conditions attached to the sale, key terms in the contract, and ensuring the transaction structure is as tax effective as possible. Much structuring is about ensuring the vendors secure the most efficient and effective outcome from the sale. It is about maximising the vendor’s position.
Positioning the business is about ensuring you achieve a sale and maximise your price. It covers areas such as removing hurdles within the business that limit its saleability, identifying the business’s competitive position within its market segment, ensuring that operating performance is as good as it can be and that the business benchmarks well in its market. The positioning also includes identifying the best time and approach for taking the business to market and who the most likely buyers will be.
Positioning is about doing everything needed to maximise the probability of a sale occurring, whereas structuring is about getting the best outcome from a transaction once it has happened. Many people make the mistake of spending most of their energy on structuring the transaction. It is crucial but only becomes necessary if the sale is achieved.
You should address structuring first to identify key decisions that need to be made. However, you should put most of your effort into positioning the business for sale. To do this, you need an objective assessment of how the business compares in its market, its competitive position, and what, if any, impediments to sale exist – all the things a buyer will look at and look for when they assess your business. Most buyers believe that we are currently in a buyer’s market and will try to drive down price expectations. Whether or not you are in a buyer’s market depends on your industry segment; regardless, you are in a competitive market. Buyers may compare your business to similar businesses and opportunities in other industry segments. Securing a sale at the best price is about positioning your business for sale. Preparation time is needed to achieve this well before putting your business on the market.
Are you thinking of selling your business? Talk to me today about preparing your business for sale.