Value your business
10 ways to maximize the value of your business
Recasting Financial Statements when selling a business
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Selling your business

Want to sell?

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Selling Process

  1. Get your company "fit" for sale
  2. Establish the true income of the owner
  3. Value your business
  4. Choose an experienced Business Broker to sell your business
  5. Contract with a broker
  6. Discreetly place your business in the market at agreed price
  7. Don't rule out seller finance
  8. VERY IMPORTANT: Qualify the potential buyers
  9. Negotiate the deal
  10. Be prepared for the due diligence
Sell your business

Get your company "fit" for sale

Many buyers will assess a company according to how well the books of the company are kept. You should have the following documents easily at hand and up-to-date: up-to-date management accounts, financial statements for the previous financial year (better last 2 years), Asset list with credible valuation, VAT returns for the last 12 months, signed lease agreements, signed employee contracts, Copy of Lease / HP agreements with settlement figures and any contract of significance.

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Establish the true income of the owner

This number, often also referred to as the discretionary cashflow to owner, is usually established the following way:
Profit/Loss from Income statements

  • Plus total compensation of a single owner-operator.
  • Plus adjustment of all other working owners' compensation to market rate (manager replacement).
  • Plus annual depreciation and amortization expense.
  • Plus interest expense.
  • Plus non-recurring expenses.
  • Minus non-recurring income
  • Plus expenses not related to the business operations.

Every buyer will need to see what the true yield of your company is. Any experienced business broker will be able to give you a recasted income statement before you start marketing your business.

More on recasting your financial statements

Sell your business

Value your business

It takes an experienced Business Broker to help you establish the right value to market your business at. Remember, the market value of your business is the estimated amount for which a business should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
Do not accept the simple rule of thumb valuations that inexperienced brokers will try to explain to you. Valuations like straight multipliers of earnings, revenues or gross profits are not acceptable. According to the International Valuation Standards (IVS) published by the International Valuation Standards Council, an accepted method of valuing a business would be an average of at least 3 methods.

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Sell your business

Choose an experienced business broker to sell your business

Why choose Aldes?

What my broker should have

Valid Fidelity Fund CertificateIt is illegal to charge commission if the broker is not in possession of a valid FFC.
Valuation toolMost sophisticated tool available in South Africa (sample valuation)
Maximum exposure for my business (however confidential)Through Aldes network exposure to 50 offices throughout Southern Africa
National/international networkAllows for optimal marketing to a broad audience of potential buyers.
Thousands of potential buyersAldes has accumulated over 9000 registered qualified buyers in just the last 18 months
Sell your business

Contract with a broker

There are usually two standard ways of contracting with a business broker.

Open Mandate

An open mandate has no set time period and can be given notice any time. The fact that the mandate is open means that there can be more than one party working on the mandate at the same time. This has disadvantages, the most obvious being a possible breach of confidentiality when you have too many people punting your confidential information around.

Exclusive Mandate

This is a mandate whereby you contract with a single Broker or (as with Aldes) group of Brokers for the sale of your business on an exclusive basis. The mandate usually has a time period of 6 to 12 months. It goes without saying that you need to select your Broker very carefully if you contract with him exclusively. If you have convinced yourself that the selected Broker can offer you the best exposure and service, there are a number of advantages to an exclusive mandate:

  1. Total commitment from the Broker, as an exclusive mandate is also a commitment from the Broker to the seller.
  2. The difference between selling a house and a business is that, when selling a house, you want absolutely everyone, including friends, staff and neighbours, to know that you are selling. When selling a business, you need exposure to a specific target group, while at the same time keeping the fact that you are selling highly confidential. In particular you do not want your staff, suppliers and customers to know that you are selling, as this may have a detrimental impact on the business, and therefore the price that you achieve through the sale.
  3. If there are more than one brokers involved in the sale of your business, a perception might be created that you are a desperate seller. Once again this will impact on the price that you will be offered.
  4. The more people that you have introducing buyers to your business, and walking around with buyers at your premises, the more likely it is to become known that you are selling.
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Discreetly place your business in the market at agreed price

Your Broker should have a number of potential buyers in his buyer's database, which would be the first port of call for new listings. At the same time the business should be marketed on various websites and/or other mediums, while at the same time keeping the fact that your business is 'for sale' totally confidential.

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Don't rule out seller finance

Statistic show that sellers offering seller finance for between 10% and 40% of the purchase price will achieve an up to 18% higher purchase price for the business. The simple reason for this is that the buyer that really wants your business, but can't really afford to pay the purchase price in cash, will be guided by a good broker to rather offer a higher price for a structured deal, than compromise on the choice of business.
On the other hand, if you do not need all of the cash immediately, you could charge the buyer an interest rate that is substantially higher than the rate that you would achieve if you had to invest the money at the risk-free interest rate. The interest plus capital could be a very nice source of income for the next period of time, and can be structured to be very tax effective.
The business effectively remains yours until full payment of the purchase price, so that the risk is fairly limited. Another advantage is that you are clearly showing your confidence in the business by accepting this kind of deal.

Sell your business

VERY IMPORTANT: Qualify the potential buyers

One of the most important aspects of selling your business is to restrict your focus to buyers that are willing to sign a confidentiality agreement, while at the same time providing a clear indication of the ability to finance the transaction. You are providing potential buyers with the most intimate details of you operation, so it is only fair to expect the same from the buyer.

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Negotiate the deal

With the assistance of the broker this is the most important aspect of the whole process from your perspective. The broker will act as an intermediary during this process until such time as an agreement has been reached between the parties. It is important to focus on all important aspects of the deal, including, but not limited to : Payment of Deposit, effective date of the transaction, due diligence period and process, Take-over period with involvement of seller, payment of full purchase price, possible interest and security.

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Be prepared for the due diligence

The Due diligence process is without doubt the most painful period of the whole process. You as the seller really want to bank the money and move on with your life now that you have the deal.

The buyer's biggest fear on the other hand is to pay across his hard earned money, only to find that he has been ripped off.

You should be totally proactive during this period to show the buyer that he has bought a good business, and that there are no 'skeletons in the closet'.

Your broker will act as an intermediary between the parties and should be able to manage any issues that may come up and advise both parties accordingly. Beware of the broker that is never to be seen again as soon as the signatures are on the contract.