Making the decision
Business owners make the decision to sell based on a variety of reasons including:
- Partnership dispute
- Diminished interest
- Illness or death
- Company growth beyond the business’ capacity to fund
- Growth beyond the ability of the existing owner to manage
The decision to sell a business is often more difficult than selling an asset because a business is more than an income – it’s a lifestyle. Ideally plans to sell a company should be made years in advance. This permits time to adjust accounting practices and demonstrate at least a three year track record of maximum profitability.
It is important to remember that minimising tax liability during these years will also minimise the value of your business. Audited statements are the best kind of financial evidence to show to potential buyers because they are easily verified. Additionally, the neatness and aesthetics of the business should not be disregarded. Things like office cleanliness and well organised files can be improved over the years after the decision is made.
Buyers of businesses usually have one of three motives:
- Some are themselves owners of private companies looking to diversify their market, or perhaps access to new technologies
- Others evaluate the purchase solely for financial gain
- Lastly, there is a majority who wish to not only buy the business but operate it
These buyers must make several judgements about their position to buy a company beforehand including:
- If the size of the company is appropriate in terms of sales, profits and employees
- Whether the profitability and stability of the company is adequate
- How the company sits in relation to the amount of money they have available for investing
- If cash is not readily available then a buyer must also consider the possibilities of obtaining funds from another source
By assessing their own decision in terms of their financial situation, buyers can establish a list of criteria for the businesses they wish to buy and narrow down the field.