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Shane Crommelin, Partner – Business Advisory, Crowe Horwath

Preparing your business for sale – and getting the maximum value!

It is often the case that business owners spend years and years building and investing in their business. When the time comes to exit, we find they often don’t know how or where to start, which is where we can help. No matter what stage of the process you’re at – whether you’re preparing the business for sale, trying to minimise the tax payable or even conducting a confidential business sale process, our expert team of advisors can help. We will give you peace of mind to make sure your business will achieve the best possible outcome when the time comes.

 

The first step is in the plan

Planning for your business sale should ideally begin between one and three years before the sale is actually offered. This is crucial to allow business owners sufficient time for preparation to enhance value where possible. Value is often determined by multiplying profits (future maintainable earnings) by a risk factor (multiple) and by focusing on these components, owners can take action improve the overall value.

 

Three tips to consider

  1. 1.       Increase earnings

One of the most important factors that will enhance the future earnings of any business is in the strategic planning. We find that if our clients implement a strategy and action plan they will be better positioned to understand the future direction of their business. In turn, they will ensure they are choosing to focus on the right areas for growth. 

 

  1. 2.       Decrease risk

The lower the risk in a business, the higher the value of the business…

 

Business owners should conduct a thorough risk assessment of their business prior to embarking on the sale. This provides sufficient time to eliminate, reduce or mitigate risk before the business is offered for sale. To highlight the importance of assessing risk in a business, our advisors will ask business owners:

  • Can they leave the business, or are they critical to its future success?
  • Does the business have signed contracts in place with its customers?
  • Are key staff members ‘locked in’ with suitable employment contracts and retention strategies?
  • Can the financial statements withstand intense scrutiny, or should you consider an audit?

 

These questions are just a handful of what prospective buyers will consider when reviewing a potential business to acquire. By understanding this prior to sale time, business owners can be well prepared to handle the tough questions during the formal due diligence period.

 

  1. 3.       Tax Implications

It is imperative that the correct tax structure is in place prior to undertaking a business sale process. Not only so that the business owner reduces the tax payable on the transaction, they will also retain the maximum after-tax sale proceeds.

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