Lets be honest, what buyers see on news each night will be influencing their decisions.  The constant barrage of negativity has to have some impact and therefore they start believing it blindly without actually questioning it accuracy.

So when a business ready to sell they need to take what is happening in the market seriously – even if it has not impacted your business.  If buyers are being influenced by the bad news, you need to have responses to the following:

• Is the current market impacting your business?
• How has it impacted your business?
• Can you clearly support what you say with facts?

Buyers do not mind if the market has impacted your business as it is expected.  However what they are interested in is the level of impact and how strong your  business is to survive through it.

With the above in mind, sellers need to understand the current market is the smallest of their concerns when selling.  The biggest impact is not what is happening in Europe, the retail vs internet or even the Australian dollar.  These are just hiding what is coming next.

From 1 July 2012 until the year 2029, there is going to be a constant supply of businesses on the market.   The first of the baby boomers turned 65 years old in 2011 and population statistics show the birth rate of baby boomers growing every year for the next 18 years.  Therefore it is going to be a buyers market for sometime.

Armed with this knowledge sellers need to ensure they structure their business properly to give it every chance of selling.  This includes pricing the business accordingly, financials up to date, secure leases, openness during the sale process and understanding what is motivating the buyer to consider your business.

Good businesses will sell.  The market will play a role in the price you achieve, however what influences the sale price and time to sell the most is how presentable,
desirable, marketable and financeable you make it for buyers.

How many times have you watched your favourite sporting team come so close to beating the top of the ladder team to only make a few mistakes in the last 5 minutes of the game to lose.  That 5 minutes is equivalent to you selling your business.  Everything you have achieved to date comes down to the final 5 minutes.  The sale price achieved, how quick it sells and the conditions placed on the sale are all going to occur in that small amount of time.  Your business may be entering its 10th year of operation, but it could be sold within 3 months.  It is scary to think this only represents 2.5% of the total business life but it influences a lot of decisions you make going forward.

Do not get me wrong, the end game of selling is very important, however it is just that, the final stage.  To get to this stage you have had to step through all the other phases which will influence the end game.  Once you make the decision to sell, from that point on, you should be preparing for the end game of selling.

So what should you do to make your business ready to sell.  Simple.  To receive the most value when you want to sell, do everything you should be doing
anyway to make your business more successful.

If you are a buyer and comparing two like businesses – which one would you consider more valuable?   The business that requires the owner to be present all of the time or the business that allows the owner to take holidays whilst the business still operates.  The business that has documented all procedures or the business where all the knowledge is limited to the owner.

The market plays a role in the price you achieve, however what influences the sale price and time to sell the most is how presentable, desirable, marketable and financeable you make it for buyers.  So when you have made the decision to sell, you need to begin working toward the end game and the price achieved is
dependent on how well you play that last 5 minutes.

Today I am going to discuss one of the other aspects buyers need to consider – the age of the refurbishment.

Let’s use an example of two businesses for sale.  They prepare similar food, have similar turnovers, similar rents and the area they are located in is also similar.  However Business A is selling for $140k whilst Business B is selling for $250k.

If you base your purchase decision solely on turnover you would go for Business A as it cost $110k less.  Therefore how do you justify the $110k difference for Business B?

Business A has been open for 10 years and requires a refurbishment.  The ovens are 10 years old, exhaust system is 10 years old, the cash register 10 years old, tables 10 years old – you get the picture.  Therefore whoever buys this business needs to understand more money is required to be spent on this business and it may be required to shut the doors  to do this work.

Business B had a refurbishment 3 years ago that cost $300k.  They put in new ovens, benches, bar area, tables, cool room etc.  They have noticed an increase in the number of customers coming through the doors as the decor is more inviting.  Also they are quicker at getting the orders out as the new kitchen is purpose built and the staff enjoy working with the equipment as it makes their life easier.

Business B may cost $110k more however you in fact are saving yourself $190k ($300k – $110k) as the refurbishment has already been completed.  Business A will need to go through this same process of undertaking a refurbishment. It may not cost $300k, however $110k difference between the two businesses will not go far if you are buying new ovens, benches etc.  Also you need to factor in planning approvals, builders, plumbers, electricians and lost revenue from being closed.

What the above demonstrates to buyers is if focus strongly on turnover you may think you have saved yourself $110k, but in fact it may cost you more in the long run.  Business B is now ready to undertake the next step in growth whilst Business A will be held back by using equipment that is 10 years old.

Do not get me wrong, turnover is very important.  However turnover is only one item you need to consider and there are a number of other items you must look at before you make the decision – will I buy Business A or Business B?

This article shows the importance that the seller and the buyer must both conclude there is a benefit to each other in completing the sale.

Harold Mitchell suggests in the article to avoid selfishness during negotiations, because if price becomes a major sticking point it won’t be much of a deal.  “Propose an offer the other party can accept”. 

To help sweeten the deal to gain a premium sale price, Harold converted the sale proceeds for stock in Aegis Group to demonstrate his confidence in the deal for Aegis.  He also committed himself to stay on and work for Aegis for a period of time.

Small businesses may not be able to do the same with regard to stock, but if the seller was to stay on in the business may demonstrate to the buyer you are there to ensure they are going to operate this business successfully.

I highly recommend you read this article as it clarifies that the sales price achieved is due to the buyer and seller being able to deal with each other and come to agreement that each are comfortable with and benefit from.

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