Deciding to sell your business is influenced by many factors, some of which you can’t control.
These could involve health problems, needing to change your business into cash, planning a new direction, or feeling stressed and overwhelmed. No matter why you’re thinking of selling, when you do it can affect the price you get. The price often reflects how well your business has done in the past. This is especially important to consider if you have a small business before you put it up for sale.
Changes in South Africa’s economy can also impact how much you’ll get for selling. Think about the bigger financial picture and how your business is doing locally, including events that could directly affect your business.
This can be a tough and emotional time for a business owner. You might see your business doing worse, which can make you lose motivation and energy. You might feel like you can’t find the strength or determination to improve the business.
This is sadly common for struggling business owners. Unfortunately, if your business isn’t making money and its performance is getting worse, you’ll probably get less money when you sell. If your business is having a hard time, think about whether you can keep it running and make more money in the future, so you can get a better price.
Sometimes, there might be a new competitor that’s making it hard for you to recover. If that’s the case, you need to honestly think about whether you can bring your business back to where it was before, or if it’s better to sell it before it gets even worse.
The price you can get for selling your business often depends on the average money it’s made over the past three to five years. A potential buyer will see that your business has been doing pretty well over a good amount of time. Once you decide to sell, don’t slow down or get too comfortable.
Selling your business can take some time, so you don’t want to lose the advantage of a good price by getting tired and slowing down before the sale is done.
Even if your business isn’t doing as well as you want, you still need to keep it going until you hand it over to the new owner. Buyers want to see that the business is still running and has potential.
If your business is growing and making more money, it’s a great time to sell because smart investors are eager to join in on your success. But why sell a successful business? Well, you can enjoy the rewards of your hard work and success.
Because buyers are willing to pay more for a business that’s making more money, a period of growth and profitability is a good time to reflect: Do you still enjoy owning and running your business? Would you be just as motivated if the business weren’t doing well? Can you keep this growth going? What are the good and bad sides of selling now?
When you started your business, you probably loved the challenges of being an entrepreneur. Now that your business is established, those challenges might have turned into routine tasks that bore you. If you’re not having fun anymore, it might be time to think about selling.
This is a tough reality to admit. Being a business owner means knowing when someone else could do better. If your business has grown beyond your abilities, it might be time to find someone with the right skills to make it even better. If you can’t give your business what it needs anymore, selling it to someone who can might be a good idea.
Because buyers are willing to pay more for a business that’s making more money, a period of growth and profitability is a good time to reflect: Do you still enjoy owning and running your business? Would you be just as motivated if the business weren’t doing well? Can you keep this growth going? What are the good and bad sides of selling now?
There are always possible threats that could affect your business’s money and how well it’s doing. For example, if you own a small hotel, competition from Airbnb could be a worry. Think about local video rental stores struggling because of streaming services like Netflix. You need to stay updated on these trends in South Africa so you’re ready for what’s coming. Also, think about how changes in your area could affect your business.
Sometimes, you might want to sell your business because a great opportunity comes your way. Let’s say you run a successful social media platform and a big company like Facebook wants to buy it. They might offer you a lot of money. You’ve worked hard to build your business, but a big company like Facebook has more resources to make it even better. This kind of offer is something to seriously think about.
In conclusion, deciding when to sell your business involves diverse scenarios, each with its implications. Declining profits can be demoralising and affect your sale price, yet considering a turnaround is crucial before opting to sell. Steady performance influences the sale price, demanding ongoing effort. Selling during growth demands self-assessment: Can motivation persist? Business enjoyment waning signals a potential exit, while recognising skill gaps may prompt passing on the business. Staying aware of industry trends and seizing lucrative opportunities are vital. Ultimately, selling smartly hinges on grasping financial health, external factors, personal goals, and future potential, ensuring an aligned and strategic choice.
Deciding whether to sell your business with the help of a professional advisor (broker) or by yourself has its pros and cons. If you decide to handle it on your own, there’s a risk that you might lose focus on your business. If your business takes a while to sell or doesn’t sell at all, you could miss important opportunities and lose track of how well your business is doing financially. On the other hand, seeking assistance from a broker means you need to find someone who takes your selling seriously. However, this option can be costly, and not all advisors are patient or have strong ethical values. You can ask your business contacts and industry groups to suggest a reliable broker. South Africa has many good brokers to choose from, so take your time finding the right fit for your business.
Ask the broker for a detailed explanation of how they will promote your business, attract potential buyers, and make it visible in the market. Request examples of business profiles they’ve created for other clients. You should expect them to provide a deep understanding of the businesses they’ve showcased. If their plan only involves creating an online listing, it might not be very effective, and you might want to consider finding another broker or doing it yourself.
Ask the broker to give you details about at least ten people who sold businesses with their help, and then get in touch with those people.
Even if the broker has sold many businesses, a good review says a lot about how good they are and how honest they are.
Be cautious if a broker tries to get you to sign up for their services right away in your first meeting. This might not be a good sign. A great business broker should be more interested in learning about your business. They should ask you lots of questions about it. This shows they’re committed to understanding your business well enough to sell it and find a suitable buyer. Subsequent meetings indicate they’re willing to invest time and effort. They should also help you prepare for potential questions that buyers might ask. You want them to show if your business is sellable.
A broker can help iron out the process and improve communication during a deal. They can assist in delivering tough news or taking a firm stance. However, too much intervention might not be good during negotiations, so it’s a good idea to maintain your own communication style. To make a buyer feel confident enough to make an offer, they need all their questions answered and reassurance that the transition will be professional and without complications. The more confidence and trust you can build with the buyer, the higher the chances of making a successful sale. It can be challenging to establish this trust solely through a third-party broker, so you should be involved in important communications.
Consider how much you’re willing to pay for a business broker’s services. Brokers usually take a percentage from the sale. Are you worried about losing control if you’re used to handling everything yourself? Or do you think managing the sale on your own will strain your business? A broker might pressure you to accept a contract that you’re not happy with. If a deal seems like it might fall through, a broker might push you to accept a lower price so they can earn their fee. Make sure you find a broker you can trust. Also, find out how many other clients the broker is currently working with. Do they have enough time to effectively represent your business?
In conclusion, selling on your own risks diverting your attention, potentially leading to missed opportunities and financial setbacks. Seeking a broker’s assistance necessitates finding a committed and ethical partner, albeit at a cost. Factor in the cost, control, and trust when choosing a broker, ensuring their availability to effectively represent your business’s interests.
Getting your business ready to be sold requires good preparation. This guide will show you how to evaluate your business, document how it operates, organise paperwork, and make your premises look appealing to potential buyers.
This step is a bit different from determining how much your business is worth. It’s about carefully assessing how your business runs.
This method gives you a balanced look at your business, focusing on its strengths, weaknesses, potential, and vulnerabilities. If you haven’t been taking a close look at your business, now is the time to write down everything so that potential buyers can understand what they might be getting.
As a business owner, you shouldn’t be the only one who knows how your business works. Your team should be well-trained, especially when you’re getting the business ready to be sold.
This could involve everything from day-to-day tasks to yearly checks. The buyer will want to know if your business will still work well after you’ve left. Create a manual that explains how operations run and share it with your staff, so everyone knows what to do.
Think about a plan for passing on your knowledge so that no one is left in the dark after you sell. Will there be a period of time where you and the new owner work together to talk about how the business is run? Make sure your staff know what to do and can help the new owner learn.
Any business owner knows that there’s a lot of paperwork, from meeting notes to financial records, legal papers, and general files. It’s important to keep everything organised. You need to have all the financial statements and accounting records from at least the last year, if not more.
Being organised with paperwork is important to show that your business is worth buying and to facilitate that the selling process can be done at optimal efficiency.
Take some time to look at your business from a customer’s or buyer’s point of view. There might be paint peeling, a door that squeaks, or a tap that’s broken. Small fixes like these can affect how much you can ask for when selling. We usually judge by what we see, so fixing up small issues will make your business look more appealing to potential buyers. Your potential buyer wants to feel confident about buying your business. Making it look better will help ease their worries.
In summary, getting your business ready to sell takes careful planning. You need to look at your business, write down how it works, organise all the important papers, and make your business premise look better. When assessing your business, think about what it’s good at and what could be better. Sharing how your business works with your team is important, and having a plan for when you leave is a good idea. Keeping all the paperwork tidy, especially financial records, is crucial. This smart plan makes changing ownership easier for both you and the buyer of your business.
Our guide explains why it’s important to figure out how much your business is worth, the information you’ll need to do that accurately, different ways to calculate value, and how intangible assets and goodwill can affect it.
Many business owners think they only need to know the value of their business when they want to sell it. While that’s true, it’s also helpful to know its value for other reasons:
Your business has come a long way since it started, and it will keep changing in the future. Keeping records of how it began, its goals, and its journey is important for understanding its value.
Having a complete record of your employees helps potential buyers know about their roles, skills, pay, and how happy they are at work. If some employees plan to leave with you, make sure it won’t hurt the business.
Details about your contracts, leases, licences, permits, and registrations can affect your business’s value. You need to show that your business follows the laws for the environment, health, and safety. Tell about any legal issues too.
This means stuff like how much profit you make, how much business you do every year, and the value of your stuff (like equipment and property). It helps experts understand what your business owes and what it’s good at.
Look at how your industry is doing, both now and in the future. Check out your competition and why you’re better. All of this affects how much your business is worth. Knowing what other similar businesses cost helps too.
Business value is about working out how much your business is worth. It’s not easy, but there are different methods to figure it out:
This method adds up everything your business owns and subtracts what it owes. Some assets you can count, like tools and property. Other assets, like how much your customers like you, also matter. These assets include:
You can think about the suggested prices that your industry follows. Since each industry is unique, explore your industry to find its standards and methods, and gain a clear idea of where your business stands within this framework.
See how much businesses like yours sell for and guess from there. But remember, each business is unique, therefore only estimates can be made. Factors such as locations, equipment, and customer base have a direct impact on value. Using this method in isolation will yield bad results.
This method of determining value relies on calculating the amount the business owner would get from selling all the physical assets quickly in the open market. It works well for businesses in trouble, but it’s not very useful for a business that plans to keep running because it doesn’t take into account non-physical assets.
This approach entails estimating the funds required to start the business from the ground up and achieve its current scale, position, and earnings. Take into account the time and resources needed for staff training, acquiring facilities and tools, and creating a brand and marketing strategy.
However, it’s important to note that this method shouldn’t be solely relied upon, as it doesn’t account for non-physical assets.
Discretionary income-based valuation This approach uses the current owner’s optional earnings to predict the future owner’s income and potential return on investment. However, it focuses solely on present earnings and doesn’t effectively capture the potential future expansion of the business.
This is a widely used technique. The value of each share in the market is divided by the post-tax earnings per share, resulting in a P/E ratio.
For instance, if a business’s shares are priced at R30 each and it has made R1.25 per share after taxes, the P/E ratio would be calculated as R24.00.
Typically, a higher ratio indicates that investors anticipate greater future growth for the business.
Discounted cash flow (DCF) assists in gauging the worth of an investment by forecasting a business’s forthcoming cash streams. In simple terms, DCF endeavours to figure out the value of an investment in the present by estimating the amount of money it will amass in the future.
This method suits businesses with potential growth prospects but lack substantial assets and a proven financial history. A typical example is a start-up operating on the internet. The technique subtracts non-physical elements from projected cash flows or NPV (net present value).
For instance, consider a company earning R10k annually, expected to remain consistent for the next decade. R10k received in five years won’t have the same value as R10k received today. If the recipient invested that R10k today in a bank with a 5% interest rate, it would grow to R12,763 in five years.
Working backwards, the R10k received in five years would be worth R7,835 today, using the following discounted cash flow formula: R10000(1+5100)5 = R7835. R10k received in 10 years time is worth R6139 today: R10000(1+5100)10 = R6139. Adding up these numbers provides the buyer with an estimate of the present payment needed to obtain future returns from the business. If the value calculated using DCF analysis is greater than the current investment expense, the potential may be quite profitable. Unless you have a good understanding of DCF, it’s advisable to seek expert assistance when opting for this approach.
Every field possesses its own sources of information, business intermediaries, and industry groups that can supply up-to-date ratios specific to your sector. The multiplier technique employs the business’s total sales multiplied by this ratio to arrive at an assessment.
For instance, if total sales amount to R60,000 and the ratio stands at 0.4, the outcome would yield a business value of R24,000. Bear in mind that there exist variables which can amplify or diminish this ratio, thus potentially affecting the precision of your valuation.
Some factors capable of enhancing the valuation ratio:
Certain factors that might lead to a reduction in the valuation ratio:
This technique derives its multiplier from a business’s earnings. As a result, smaller businesses tend to fall within the lower end of the multiplier spectrum, while well-established companies lean toward the higher end.
However, this method doesn’t consistently provide accuracy as it fails to consider the current financial situation or potential risks.
Determining the value of a business is an intricate and meticulous process. It’s advisable to seek specialised guidance to ensure that you’re selling or purchasing the business at its true value.
A broker can help iron out the process and improve communication during a deal. They can assist in delivering tough news or taking a firm stance. However, too much intervention might not be good during negotiations, so it’s a good idea to maintain your own communication style. To make a buyer feel confident enough to make an offer, they need all their questions answered and reassurance that the transition will be professional and without complications. The more confidence and trust you can build with the buyer, the higher the chances of making a successful sale. It can be challenging to establish this trust solely through a third-party broker, so you should be involved in important communications.
Consider how much you’re willing to pay for a business broker’s services. Brokers usually take a percentage from the sale. Are you worried about losing control if you’re used to handling everything yourself? Or do you think managing the sale on your own will strain your business? A broker might pressure you to accept a contract that you’re not happy with. If a deal seems like it might fall through, a broker might push you to accept a lower price so they can earn their fee. Make sure you find a broker you can trust. Also, find out how many other clients the broker is currently working with. Do they have enough time to effectively represent your business?
In conclusion, selling on your own risks diverting your attention, potentially leading to missed opportunities and financial setbacks. Seeking a broker’s assistance necessitates finding a committed and ethical partner, albeit at a cost. Factor in the cost, control, and trust when choosing a broker, ensuring their availability to effectively represent your business’s interests.
Once you’re confident in your business’s valuation, it’s time to consider strategies for promoting it to attract potential buyers. Once a buyer is found, preparations should be made for due diligence, which involves the buyer’s thorough review of financial records, relationships with customers and suppliers, and physical assets. Valuing a business is a big job. If you want to buy or sell one, it’s smart to get help from someone who knows how.
When two parties are trying to make a deal, it’s best if both sides end up happy. The process of negotiation shouldn’t feel like a fight. Even though standing up for yourself, discussing a fair price, and going over the terms might seem like arguing, it’s actually a normal part of working towards an agreement that benefits both sides.
Planning is really important Before you start talking, it’s crucial to plan. Figure out the lowest outcome you’re okay with, what you hope to achieve, and the very best outcome you could get. Also, have a backup plan just in case the deal does not go according to plan. Make sure you understand what the other party wants and needs.
Good planning comes from understanding and knowledge, so make sure to research the person you’re dealing with and take the time to meet with them during the process of making a decision.
When you talk about your plan, do it calmly and simply. Make sure you explain clearly what you’re offering and what you want from the other person. Think about the whole process and remember that both sides have expectations.
Negotiating is also about finding middle ground. Ask questions and pay close attention to details. The first idea you put forward probably won’t be accepted right away, so be ready to give in a bit and make some compromises. On average, you might have to disagree a few times before you can finally agree.
As you talk about your deal, watch for signs that it is coming to an end. The other side might start to lose energy, look tired, or you might realise that you’re both thinking along the same lines. This is a good time to conclude, write down the decisions you’ve made, and quickly follow through on any promises.
This is a tough reality to admit. Being a business owner means knowing when someone else could do better. If your business has grown beyond your abilities, it might be time to find someone with the right skills to make it even better. If you can’t give your business what it needs anymore, selling it to someone who can might be a good idea.
When you start planning, decide on the lowest outcome you can accept for your sale. If the other side doesn’t agree to that, it’s smart to have a backup plan. In the business world, this is called your ‘best alternative to a negotiated agreement’ or BATNA.
You can use this backup plan to keep the conversation going. Remember, the focus is on getting results, not on arguing. It’s also okay to walk away, or if you’re not making progress, you can ask a neutral person to help you both find a solution.
In summary, negotiation is a skill that needs practice to grow. Understanding key areas to focus on becoming more proficient is important. From planning to closing a deal one needs to be professional and aware of the process. Evaluate all solutions and be clear on plans.
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