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Do you know how much your business is worth today?

January 30, 2023

If a buyer presented you with an offer for your business today would you know whether it is a good offer?

Like me, if you have a business you are probably relying on being able to sell it for a good price to help you in retirement. But do you have an exit strategy?

One on my golfing friends makes a good living from buying and selling businesses so if you are ready to sell you might then be able to buy another business and bank a capital gain on the way.

With the shifting market conditions, higher interest rates and less certain times buyers are always looking for opportunities to buy businesses. So, if you are always “sale ready” / know your business value you will be in a strong position when opportunities arise.

The ideal situation is to build into the sale process over a two / three-year period. 

However, often business owners are affected by the need to sell much quicker when their circumstances change – such as health issues for them or their family or when their business partner has issues or a relationship breakdown.

Not being “sale ready” will almost certainly result in a poor value outcome when a sale needs to be completed in a rush.

Being sale ready is really just a matter of good efficiency – including:

  • Having your business plan in place / knowing where you are going in terms of your SWOT – Strengths, Weaknesses, Opportunities & Threats
    • Complete a strategic planning process to work on profitability improvements / improving returns on investment / which parts of your business or customers produce the best profits and how to focus better into these areas.
  • Having your annual accounting and tax returns up to date.
  • Knowing how your current year is performing against budget and GST / FBT returns all filed on time.
    • Having your cashflow forecasts up to date to demonstrate that you can resource the sales you are planning to make.
  • Having the right team and documented systems in place to help you run your business efficiently.
  • Being tidy – legally with agreements in place - employment contracts, premises leases, supply agreements, patents filed with IPONZ, domain names protected etc are all up to date and - physically with your premises / offices well presented.
  • Avoiding having any personal costs running into your business. The “improved” profitability, by leaving these out, will multiply into a better value outcome.

Sale structure – the business sale structure can be set to work for both vendor and buyer: the vendor will want to maximise capital gains with higher goodwill / IP value and lower depreciable assets and the buyer will aim for the opposite structure! Under new tax rules the vendor and buyer must use the same numbers but there may be ways to structure the sale to make some of the goodwill / IP tax deductible for the buyer thereby improving the sale value for the vendor.

Working through being “sale ready” may well help you find ways of improving the results from your business and give you more family / holiday time from finding better ways to manage your business by delegating key functions to team members.

Valuations – you probably have some idea of your business value and accountants can work through numbers like EBIT / EBITDA / EBPIDT “Multiple of Sellers Discretionary Cash”. (Earnings Before Proprietor’s income Interest Depreciation Tax) x a multiple – sometimes 3 x etc.  However, business brokers will always provide more value for you because they work with buyers and sellers in the marketplace. At the end of the day the value depends on supply and demand and the brokers are in the best position to help you work through this equation. We can introduce you to a good and successful Business Broker who can help you with the valuation process – as a start to your planning and exit strategy or simply to be sale ready in case something unexpected comes your way. (please call John on 021 074 0906 for the introduction to our Business Broker contact to help you with a valuation.)

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Chartered Accountants Howick Auckland Chapel Road Blue
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