• John Burnett is the managing director of Investor Business Brokers
Nearing retirement? Few if any business owners give serious consideration as to steps that should be in place to ensure a successful ownership transfer. Eventually, the need to move on will finally dictate a call to action.
It's a universal truth that the life cycle of a business can only end in one of three ways - sell it, give it away, close it.
There are some 487,000 registered businesses in New Zealand. A recent survey indicated that some 75 per cent of business owners do not have a written succession plan.
Today the majority of business owners who are making the decision to sell a family-owned business are doing so in response to a real or imagined personal or business crises.
Reason for sale?
When making the decision to sell it's important to focus on your true objectives. The first thing a prospective buyer will want to know is the reason for the sale. The more valid the reason the more serious will be buyer interest.
The decision to buy or to sell a business involves a difficult balance act between the personal motivations and financial reality of the individuals involved.
A desire for a life style change, "I want my life back" or "I want to be closer to the grandkids", can often summarise the personal motivation of business owners considering a sale.
Having made the decision to sell you don't want anxiety to force you into accepting an offer that's not good for you - or for the buyer
Once you have made the decision to sell - and before talking to your professional advisers - you should gather information needed to successfully market your business.
As a potential seller, you should put yourself in a prospective buyer's position. The next time you go to your place of business, look at it with a buyer's eye. How impressed are you?
Remain proactive in the business as it's important that prospective buyers see your business at its bustling best and showing no signs of neglect. First impressions count, tidy up the building signs, repair the entrance to the building. Clean up the balance sheet, if you expect to grow sales by 20 per cent next year document your case.
Consider seeking professional advice in putting together an outline of your business - the "Sales Memorandum"
Anticipate what questions a buyer would ask and ensure that you have included in your preparation answers to those anticipated questions. Be proactive in your preparation rather than reactive to yet another buyer query.
Remember that the best buyers are not necessarily competitors nor financial acquirers but a buyer who wants to be in your particular industry sector.
You need to identify those factors that would appeal those particular buyers.
Seek out those who would benefit from acquiring your business. A synergistic buyer is one who can combine aspects of their business with yours.
An example would be in the sharing of marketing resources, a complimentary product mix and or a transfer of managerial skills.
Consider the views of your professional advisers as it is important that you are not distracted during the sale process, you still have a business to run.
Engage a team who understands the sales process and can demonstrate a successful track record in that regard. Watch out for the inexperienced professional advisers, whereas accountant's lawyers and sales agents who have been through such negotiations a few times know what's reasonable.
Having selected your professional team, you do need to work with them. Expect to come in contact with seasoned business buyers well versed in the process, follow your team's advice about dealing with prospective buyers-there's a right and a wrong time to meet buyers.
Confidentiality works both ways - you will be concerned about inappropriate disclosure to your staff, suppliers and customers and a potential buyer will look to you to keep their business affairs confidential.
The highest offer wins! No, often the highest offer does not win but rather the offer that is most likely to close promptly without substantial buyer conditions.
It is important to predetermine price and terms prior to meeting with a buyer prospect - a calm rational pragmatic view of the minimal accepted price and terms will assist towards a successful outcome.
One of the primary concerns for buyers in assessing the value of the company is the sustainability of earnings after the acquisition
A timely decision to sell, coupled with proper preparation and a comprehensive understanding of the unique rules around the sell/buy environment will ensure a successful business ownership transfer.