What Is My Business Worth?

By Des Chambers

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Part One – Some tips to help you through the sales process.

Editor’s Note: Many small business owners build their business in the belief that they are creating an asset that can be sold. Unfortunately, many find out too late that the actual value  is much lower than they imagined, often due to poor preparation or the fact that ‘they are their business’, and once this vital force is removed from the company, the residual value is minimal. 

If you have ever thought of selling your business, or if you have set 2017 as the year to do so, these tips will help!

The reasons for selling a business are many: Perhaps you want a new challenge, or you have health issues requiring your full focus. Alternately, you’re bored or the passion is gone. Maybe you sense you’re no longer the right captain for this ship, it needs a corporate manager … or, less dramatically, it’s time to retire.

Bottom line: Your business, which may be one of the single biggest assets you own, is the result of years of effort and dedication. So show the same dedication when it comes time to sell, by following some simple tips:

Tip one: Consider enlisting a brokerage service to help you with the sale of your business, ideally one who is registered with The Estate Agency Affairs Board.  Being registered with the EAAB ensures that any monies held in trust by the broker are covered by their Fidelity Fund. A professional business broker will screen potential buyers on your behalf, fielding all phone and email responses. He or she will answer initial questions and ascertain their interest level, management skills and ability to meet the financial requirements of the potential sale, as well as receiving signed confidentiality undertakings/non-disclosure agreements.

Tip two: Correct preparation is crucial. To get maximum value this preparation should start many years before you want to sell.  The business must be properly packaged, with all applicable records and facts in a suitably organised and documented manner. A primary requisite will be the presentation of up-to-date financials. No investor worth his salt will consider buying a business without verifiable transactions and records, so this step is absolutely critical

Tip three: Determining a fair market value for your business is an involved procedure, which takes many variables into account. Consideration must be given to the strengths, assets, staff and infrastructure, historical financial performance and projections, along with the many intangibles of your business like the strength of your brand etc. Other elements that enhance (or possibly detract from) a business’ value include reputation, market niche, operation and production systems, location, customer loyalty, trained and skilled employees, as well as future potential.

A great starting point is to find out what similar businesses to yours in similar industries are selling for.

Tip four: Be patient! The transition period after a sale typically involves a period of co-operation in which the buyer is assisted by the seller and the broker in completing a seamless transition. Matters such as transferring of key relationships and the handing over of proprietary information needed to successfully operate the business are dealt with. This is a very important step in the entire process and while a deadline is advisable, the time required to effect this varies from business to business and in some cases you may be asked to stay on for a period of time.

Editor’s note: Lastly, don’t be surprised if the process of preparing your business for sale, valuing your assets, and reviewing your options re-invigorates your passion and love for your business. And that too, may be the result you actually looking for… In the next issue of the Catalyst we will look at some ways to arrive at an actual value for your business.

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Des ChambersDes Chambers is a qualified Chartered Secretary and Management Accountant and is registered as a Master Practitioner in Real Estate (MPRE) with the Estate Agency Affairs Board (EAAB). He has previously been employed with JSE listed companies in the manufacturing and property fields and is now the Principal and owner of Cape Business Bureau which was established in 1953 by the late Solly Joffe.

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