Guest post by: Thomas Taylor
Potential buyers for your business can come along at any time, even If you are not actively marketing your business for sale.
When it happens it can set you off-guard, so I think it’s a great idea to always be ready. To have a “due-diligence folder” kept up to date that you can always put your hand on.
It sounds like a lot of work but it isn’t really and, like most things, much easier if you are prepared in advance and not under pressure. You also get to look super organised. A healthy, well run business with good cash flow will always have good exit options. The work is mostly done well before you talk to buyers. You can also use this folder to support borrowing money or attracting investors.
What’s my business worth? How valuations work
It’s also important for you to know what your business is approximately worth, it’s a big part of why you’re doing all this hard work. Right?
There are usually three reasons why someone will pay money for a business :
- proprietary systems and processes that make operations better and/or cheaper for them,
- securing the skills of good people and their access to target clients,
- contracts with clients and the associated annuity income.
If you keep these in mind while you grow your business it makes the job of selling much easier. A word of caution, like most sale processes, never talk price in the first instance. There is almost always so much more to consider and it’s best to focus on what their needs and aspirations are before talking money.
I would recommend that you build a relationship with a business broker even if you don’t want to sell your business in the immediate future. It’s nice to know the person if you ever need to pick up the phone in a hurry. I bet you know a good real estate agent, the process of selling your business is probably a little more confusing for most people so it’s good to have an idea of what it might look like in advance. I know some good business brokers if you want a name.
Need some legals? Try lawpath.com.au
Back to the “folder”
It can be electronic these days but the principle is still the same. Its purpose is to let any prospective buyer, and their advisors, easily access important information about your business. A non-disclosure agreement is a good idea before you hand it over.
The folder will also ease and speed the process of due diligence when things get more serious. Due diligence is usually performed by the audit division of an accounting firm and the secret is to anticipate what they would want to see and have it all available in one place so they can easily check it: to be honest and open.
Your folder might include your business plan, marketing plan, annual accounts, monthly management accounts, budget, profit and cash-flow forecasts, contracts, leases, employment contracts and documentation. These are all documents that will better help you run your business anyway, it’s just a matter of putting them all in one place.
It’s also a good time to think about possible exits, to think about what you’re doing all this for.
For more information head to: www.t2consult.com.au or contact Thomas for some advice: firstname.lastname@example.org