You Wouldn't Sell Your House Like That, Would You?
Geoff Hamilton from SME Financial shares the benefits and importance of consistent maintenance within your business.
Selling a business has a lot in common with selling a house or a car. When you want to sell your house, you need to get it in order. You don’t just put up the For Sale sign without tidying up a bit. You don’t do that because the buyer will turn up and start adding up the discounts: $15,000 to fix the hole in the driveway, $6,000 for the new carpet, $5,000 to replace the fences.
That’s exactly what happens when you start negotiating the price for a business that isn’t sale-ready. The price starts out high, then the buyer begins to see all the places he or she is going to need to spend money. Is it working capital that will need to be cash flowed? Is it new staff members who will need to be hired and trained? Is it plant or other equipment that needs updating?
When it comes to finding a price for your business, a buyer will tend to start high and negotiate you down. There are cases where a buyer puts in an offer and ends up paying a lot more, but it’s rare for small local operations. Like real estate, the first offer is often the best. Ideally you’ll have a strong bargaining position in order to prevent yourself from being pushed too low. A strong bargaining position means eliminating as many of those cash traps as possible.
Now, at the risk of sounding exceedingly boring, the best way to achieve this is to have your business ready to sell. Maintenance is usually cheaper and more efficient than waiting until a problem starts having a big impact on your company’s value. Just like fixing that hole in the driveway would have been cheaper when it was just a crack, it’s far better to maintain your plant and equipment, keep your staff happy and sort out your cashflow issues right now (more on that in a later blog).
Even if you don’t intend to sell right now, your business should be reasonably ready for a buyer to inspect. If it isn’t, think why not. Anything that’s liable to be a problem for a potential buyer will also cause issues for you as the operator of your business. Think about how you’re allocating your time and your money, and do what you can to get your business sale ready this year. Ready to sell your business? Talk to our expert business brokers at Kakapo to get started.
Geoff Hamilton
Director SME Financial
www.smefinancial.co.nz