PREPARE YOUR BUSINESS FOR SALE - The Real Facts - Part 1

PREPARING YOUR BUSINESS FOR SALE

The Real Facts by Mark Corke

Good Morning Bloggers

For a while, with his permission, I will be posting articles from Mark Corke of Suitegum.

Mark is a Business Broker, who writes articles on, and runs seminars on “Preparing you Business for Sale”. Should you wish to register for some of Mark’s free articles and tips, Here is the link.

Both Mark and I are of the opinion that ensuring that your Business is Prepared for Sale at all times will ensure that your business always commands the highest value. It actually increases the value of your Business quite considerably.


Most businesses don't sell for anything close to the value they should, and frankly, that's just wrong.


Particularly when the owner isn't around to defend the value.


If you were to sell your business today, would you get what you want for it? And if you were not around, would your spouse and kids be able to sell it for what it's worth? Do you really think they could? Do you even know what the real value of your business is?


The simple truth:

Businesses are usually sold unprepared under unplanned circumstances.


"Unplanned" here, would mean death, illness, accident, fraud, severe theft and other crimes. These drive small and medium sizes into trouble every day in South Africa.


As if that wasn't bad enough, I am stunned at how many business owners give away so much for so little, because they feel Broad Based Black Economic Empowerment (BBBEE) is a threat. Are you one of them?


The truth is businesses much worse than yours are selling for much better prices. Why?
Of course, not all businesses are sold for empowerment reasons, and most often the owner of the business does not die, and is in complete control of the sale of his business. So why do so many businesses get sold below their true value?


Simple: Most business owners don't think about prepping their businesses for sale before an enthusiastic buyer asks them for financial statements, management accounts and VAT returns. No sooner are these supplied, than the prospect asks about the customer mix and debtor analysis.


On his next visit the interested party will ask about future prospects, and how the seller arrived at his price. And that is pretty much how it happens; the "purchaser" rapidly slipping down the ranks to the status of "interested party" and eventually "that bloody waste of time" as he rapidly loses interest when he can't get the answers he wants quickly and believably, and as another better prepared business grabs his interest.


Prepare your business for sale!


Now you can learn to prepare your business for sale so that at the drop of a hat you are ready to sell for 209% more than you believe it is worth today.


"Having tried to sell the business ourselves for several months,… He demonstrated to us how a few simple changes in the structuring of the sale would make the deal more attractive to buyers, and so after almost a year of being on the market, privately and through various other brokers…From the sole mandate to the initial memorandum of understanding took less than three months…..I have no hesitation in recommending Suitegum to any business seller as a professional and competent outfit" Tony Head.


You can use all the standard business tools and reports available to you right now to prove to buyers that your business is worth your asking price, and that it is not a flash in the pan or some sort of elaborate business opportunity scam.


"The professionalism and expertise provided by Mark and his team far surpassed any previous experience we had encountered through business brokers. Mark's attention to detail and valuable inputs in dealing with sensitive and complex aspects on behalf of sellers and us as buyers, made a lasting impression." Chris de Wet


I will debunk prejudiced views on a business's value through a proper and well defined preparation for sale prospectus in Prepare your business for sale; you could be able to double initial thoughts of sales proceeds. This is also valid where you have been convinced that the only buyer for your business is a BEE candidate.


"Mark handed me an offer from a prospective purchaser the terms and conditions of the sale were most acceptable to me" Len Birger.


How a client opened my eyes to the necessity of proper preparation


Some years back I sat with a client as he handed me his financial statements and his management accounts. I tentatively asked him for his VAT returns for the last year. A call to his wife, and she bustled in with the VAT returns. He reached into a file and handed me a list of debtors as he proudly proclaimed that 90% of his debtors paid within 30 days, and so it went on and on.


The seller had just signed a mandate for me to sell his business, and was now determined to prove the value of his business, a value I at first thought was perhaps a bit high.


I sat that night and looked at the 2 inch file I had collected that afternoon from the seller, and started to compile my report. Then a thought came to mind; what if I was to write such a comprehensive report that no buyer would need to ask any questions? I had certainly been given enough information to get close to this lofty ideal, and the seller was enthusiastic enough to give me every bit of help I would need.


And so, for the next 2 weeks we worked together to compile a report to answer all questions. Of course not all the information was readily at hand, and some things took some preparation.
As work progressed I became more and more convinced that the business asking price was incorrect; in fact it was too low. I discussed my feelings with the seller, and we agreed to raise the price when it went to the market.


Initially prospective buyers raised an eyebrow when told of the asking price, but looked impressed as they were handed the substantial prospectus. The aim of getting "no questions" never materialized, partly because buyers hardly ever read everything that is given to them, but also because it is only reasonable that a buyer will want to talk to the seller to get a feel for the business and its owner's motivation in selling. But the mere setting of the goal, led to a great impression being made on the buyers, and first impressions do count.


As it happened, all questions asked, were answerable from the information provided in the prospectus, and I felt a bit glib referring each question to the relevant section of the prospectus.
At the end of the sales process I was able to take two offers to the seller, signed and accompanied by deposits. This was the culmination of a race between four hopeful buyers, all tendering at a price higher than the originally mandated value we had been instructed to obtain.
The technique of full reporting and proper presentations has been used many times since then, and has always been proven worthwhile.


Why don't we prepare our businesses for sale?


Most sellers simply don't know where to begin. They know they need to present a profit figure, and they know that VAT returns will be used to prove the turnover. They hastily sketch out some cash flow forecasts based on improving "this" and implementing "that".


Sellers are scared that their staff will up and go if they discover the business is for sale. They don't want their suppliers and customers to find out.


And so they do nothing until the buyer is sitting in the office asking awkward questions. At that point, of course, it becomes a bit of a mess, as the bookkeeper is called in, sworn to secrecy, and has all the pressure transferred to his shoulders. By the next morning even the drivers know there is something afoot.


If I can show you how to pre-empt this entire debacle, and add value to your business, would you be interested in "Preparing your business for sale"? Well, of course you would. You will be empowered to prepare a complete prospectus on your business, to be easily updated every month in less than an hour.


The dangerous myth that you will never get so sick that you cannot work


Somehow we believe that we're infallible. "That will never happen to me" is a very popular refrain. In 2004 one of my best friends was cycling in the Hyper to Hyper cycle race, a distance of 100km over a relatively easy course, and considered to be one of the fastest races in South Africa.


At 70km into the race, Frank woke up on the side of the road, confused. He could not remember falling off the bike, and the road at that point was not so technically difficult as to have presented any problems. Feeling terrible, he mounted his bicycle again, and finished the race. A medical investigation later proved that he had suffered a heart attack. He lay in hospital for days, followed by weeks at home in bed, and then the balance of a full year struggling to get to his business and clients back on track, all the while feeling depressed, angry and incredibly tired.


He later bought a business in the less hectic environment of Port Elizabeth. Unable to sell his business in Johannesburg, he commutes between the two businesses! Income from the Johannesburg business supports him and his family as they grow the PE business organically. Imagine the difference the proceeds of the sale of the Johannesburg could make in giving them the option to acquire another similar business, instantly obtaining the critical mass.


Frank has always been a keen sportsman, has run marathons, has cycled in many events, and spends more time in the gym than the rest of us, and yet he suffered a heart attack. I certainly don't believe that I will ever have a heart attack, but what about a serious motor accident? What do you think your chances are?


Had his business been properly prepared for sale he would have been in a better position to sell it, recuperate properly, and then buy the business in Port Elizabeth under less stressful circumstances.


The assumption that we will all live into our 70's, 80's or beyond


As any deity you care to choose is my witness, as I originally wrote the text for this web page, I was called by a fellow Business Warrior who asked what I could do for a friend of his who had lost her husband a year ago. She had continued to run the business, which she did not really understand, and in desperation at the start of 2006, had placed a "Business For Sale" sign in the window of the business!


With landlord and supplier pressures mounting, she was now willing to accept any offer. Wow, things could have been so different. I called her, but was told it was her day off, and when I tried her mobile, it was off. Who can blame her for disappearing for a while?


Lindsay Weight, a fit 44 year old, won The Comrades Marathon in 1998. While working at her computer, she collapsed and died. Philip Tucker could not sleep, and his TV seemed to be playing up. He climbed a ladder to fix the aerial. They found him face down in the pool with a bang to the back of his head. Both had their own businesses, both have young families, both were fit and active at the time of their deaths!


I bravely stated, a few paragraphs up: "I certainly don't believe that I will ever have a heart attack". You see we all believe in the same impossible myth.


Without preparing our businesses for sale, and having these "life raft" documents available, and updated, we doom ourselves, our families, our staff, customers and suppliers to the same sudden loss in an unanticipated moment of crisis.

More next week!