Preparing a business for sale is about making it easier for a potential buyer to understand, assess and take over.
If you are thinking about selling your New Zealand business, don't wait until you are ready to put an advertisement online before getting organised. The earlier you start preparing, the more time you have to fix problems, strengthen the business and assemble the information buyers are likely to want.
"Before putting a business on the market, prepare its finances, documentation, systems, staff, customers, suppliers, contracts and assets. Reduce dependence on the owner, fix obvious problems and make sure the business can continue performing while it is being sold."
There is no guarantee that preparation will increase the eventual sale price, but a well-organised business can give buyers greater confidence and make the sale process easier.
Before putting your business on the market, focus on these 14 areas:
- First impressions
- Financial records
- Business performance
- Improve your cashflow
- Owner expenses and adjustments
- Business information and documentation
- Systems and processes
- Staff and responsibilities
- Customers and suppliers
- Leases, licences and contracts
- Assets and equipment
- Operational problems
- Information for potential buyers
- Maintaining performance during the sale
1. First Impressions Count
Replace, fix, clean and spruce up the physical appearance of your business and assets. It’s important to attract and retain the interest of potential buyers. Is this a business you would like to buy?
2. Get Your Financial Records in Order
Financial information is one of the first things a serious buyer is likely to want to understand.
Make sure your accounts are current and that financial information can be explained clearly. Ideally, you should be able to show a consistent picture of sales, expenses, profitability and cash flow.
Bring together relevant financial information such as:
- Profit and loss statements (generally for 3 years)
- Balance sheets
- GST returns
- Management accounts
- Cash-flow information
- Asset registers
- Relevant financial forecasts
Talk to your accountant early if there are unusual items or adjustments that a buyer may need explained.
3. Understand What Drives Your Business
Don't rely solely on total annual revenue or profit.
Understand what actually drives the business. Which products or services are most profitable? Which customers are most important? What generates repeat business? Are there seasonal patterns?
Being able to explain the numbers and the commercial story behind them can make it easier for a buyer to assess the opportunity.
4. Improve Your Cashflow
Boost your sales. Sales are critical to any business so continually work on improving these. Revenue and expenditure are two of the greatest contributors to cashflow. Tighten up on all expenses and eliminate any shrinkage. The buyers’ bank will be interested in the businesses cashflow and its ability to service any loans the buyer may have or need.5. Separate Personal and Business Expenses
Small business owners sometimes have personal expenses or discretionary costs running through the business.
These may be legitimate business expenses, but they should be clearly identifiable so that a potential buyer can understand the underlying performance of the business.
Don't wait until a buyer asks questions. Discuss unusual or owner-specific expenses with your accountant and make sure they can be clearly explained.
6. Organise Important Business Information
A buyer needs to understand how the business works.
Bring together important information about the business, including:
- Business history
- Products and services
- Key suppliers
- Major customers
- Staff and responsibilities
- Key systems and software
- Assets and equipment
- Premises and lease arrangements
- Important contracts and agreements
- Licences and relevant compliance information
Having this information organised makes it easier to respond to genuine buyer enquiries and reduces the scramble for information later.
7. Systems - Reduce Dependence on the Owner
Ask yourself a simple question:
Could someone else operate this business if I stopped working in it tomorrow?
If too much knowledge, decision-making or customer contact depends on you personally, start transferring those responsibilities before the business goes to market.
Improve, introduce and document all systems (have an operations manual). Train staff and make sure key information is accessible to the people who need it.
Learn more about the importance of good business processes.
8. Review Your Staff and Responsibilities
People are often one of a business's most important assets.
Make sure responsibilities are clear and identify the employees who are particularly important to the ongoing operation of the business.
Where possible, reduce unnecessary reliance on the owner by giving capable staff greater responsibility and documenting important roles and procedures.
9. Review Customers and Suppliers
Understand the strength and concentration of your customer and supplier relationships.
Consider:
- How much revenue comes from your largest customers?
- Are important customers on contracts or informal arrangements?
- Are supplier relationships documented?
- Are there important supplier discounts or terms?
- Is the business overly dependent on one customer or supplier?
These are issues worth understanding before a potential buyer raises them.
10. Check Leases, Licences and Contracts
Review the agreements that are important to the business.
Ensure all IP (intellectual property), leases and contracts are in place and up-to-date. This may include property leases, equipment leases, supplier agreements, customer contracts, licences, franchises, software subscriptions and other arrangements.
Tidy your database and ensure you have favourable terms in place with suppliers.
Check their expiry dates, renewal provisions and whether they can be transferred to a new owner.
If you are unsure about the legal implications of an agreement, obtain appropriate professional advice rather than making assumptions.
11. Organise Assets and Equipment
Prepare a clear picture of the assets included in the business.
This may include plant and equipment, vehicles, stock, furniture, technology and other business assets.
Keep the price down and the value high by disposing of any old or damaged stock, and any plant that is surplus to requirements. Check that ownership is clear and identify leased or financed assets separately.
Repair or replace items that are essential to the operation of the business where this makes commercial sense, but avoid spending heavily on improvements simply to make the business look better for sale.
12. Fix the Obvious Problems
Walk through the business as if you were a buyer seeing it for the first time.
What would concern you?
It might be outdated equipment, poor documentation, untidy premises, unreliable systems, unresolved staff issues, weak online information or an obvious operational problem.
You don't need to fix everything. Focus on problems that are relatively easy to address and could otherwise create unnecessary questions or concern.
13. Prepare Information for Potential Buyers
Before the business is marketed, start preparing the information that genuine buyers are likely to need.
This could include a clear description of the business, financial information, assets, premises, staff structure, operations and the opportunities for future growth.
Detailed commercially sensitive information does not necessarily need to be made publicly available. Information can be provided progressively to genuine prospective buyers as they move through the sale process.
14. Keep the Business Performing
One of the biggest mistakes an owner can make is becoming distracted by the sale and allowing the business itself to deteriorate.
Keep serving customers, managing staff, controlling costs and maintaining normal business performance.
A buyer wants to acquire an operating business with a future, not one that has been neglected while the owner focuses on selling it.
How Early Should You Start Preparing?
Ideally, preparation should begin well before you intend to sell.
If you think you may sell within the next two or three years, start identifying the areas that need attention now.
This gives you time to improve financial performance, strengthen systems, reduce owner dependence and resolve problems without the pressure of an imminent sale.
The best preparation is usually done while the business is still performing normally.
A Simple Business Sale Preparation Checklist
Before listing your business, ask:
- Are my financial records current and easy to explain?
- Can I clearly explain what drives the business's profit?
- Are owner-specific expenses identifiable?
- Are important business documents organised?
- Could the business operate without me?
- Are staff roles and responsibilities clear?
- Do I understand my key customer and supplier relationships?
- Are leases, licences and contracts in order?
- Are business assets clearly identified?
- Have I dealt with obvious problems?
- Can I provide appropriate information to genuine buyers?
- Can I keep the business performing while it is being sold?
When Is the Business Ready to Sell?
There is no point at which every business will be perfectly prepared.
The objective is to reach a point where the business is operating well, important information is organised, obvious issues have been addressed and a potential buyer can understand what they are acquiring.
Preparing a business for sale is therefore less about making it perfect and more about making the business understandable, transferable and ready for scrutiny.
Once you are satisfied that the business is ready, the next step is deciding how you want to take it to market and how to reach potential buyers.
