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Want to sell your business? What to consider

Want to sell your business? What to consider

In the lifespan of a business, circumstances may arise that necessitate offloading part of the business, or all of it.

These circumstances include the admission of new partners, capital raising or total divestment from the business.

If not properly managed, though, the process can lead to undesirable outcomes, such as disputes and a loss of time and money.

Selling a business doesn’t need to be chaotic. However, it’s worth noting that selling a business can be a difficult task and take months to conclude. Here are the key components to keep in mind.

1. Type of buy-out

When considering the sale of a business, a seller has a variety of transaction options to consider.

The types of buyers generally fall into three categories.

There’s the employee buy-out, which allows full-time employees to participate in the ownership of the company.

There’s the financial buyer, which makes up a large part of the buyer pool in low and middle markets. Financial buyers often look for businesses they can buy with debt financing for a fraction of the price.

Finally, strategic buyers expect synergies with their other businesses and buy companies that work within their future plans.

2. Valuing the business

The transaction value of a business is usually the most negotiated aspect when it comes to striking a sale deal.

The seller of the business needs to ensure that the value that’s been assigned is a fair representation. The proper valuation of a business should be determined by a qualified professional.

An appropriate valuation should take into consideration features like goodwill on the business, any special licenses its carrying, physical and intellectual properties present, cash-generating ability, and the industry the business is in.

The valuation should be detailed as it forms a large part of the negotiations.

And in engaging a valuation expert, you want to make sure they’re available to defend the value they arrive at.

3. Transaction advice

The sales process is an intricate one. One of the dilemmas faced by business owners is whether they’ll handle the transaction internally or hire external advisors.

Transaction advisors, although they add costs to the process, are critical because they add value to the transaction and prevent possible missteps.

A gazetted and experienced transaction advisor is also critical in lining up potential buyers, and can prove invaluable during the sale process.

4. Not all buyers are good buyers

Before the process begins and with the help of a transaction advisor, set the minimum attributes you expect of a buyer.

These attributes will be critical in evaluating the buyers, and include factors like technical expertise, financial capacity, future planning and, in the case of a partial sale, compatibility.

5. Prepare due diligence information

Before anyone buys your business, they’ll need to do their due diligence on it. Therefore, before you start the selling process, with the assistance of a transaction advisor, ensure all the information a buyer would need is readily available.

This helps ensure a smooth process. A transaction advisor will also use the information in these documents to execute their mandate.

The information that’s normally required includes financial performance records (which should be audited by a qualified firm), proof of ownership (Certificate of Incorporation), business licences, permits, financial obligations like loan documentation, lease contracts, details of all chargebacks or ‘owner’s salary’, annual returns and selling mandates.

These documents can be stored in a physical data room or in cloud-based storage.

6. Tax events

In Kenya, as in many other jurisdictions, the sale and acquisition of businesses has tax aspects that have to be adhered to.

Depending on the approach adopted, there are different tax outcomes. This is something you’d need to think about as the current tax position of the business has an effect on its value and the chances of the transaction succeeding.

7. The transition

With many SMEs, the owner’s job is not done once the business is sold – often, the new buyer will want to be walked through the business and become familiar with its operations and key clients.

There are two ways to manage this process. One, the owner can stay on as a business worker (with remuneration); second, the owner can draw a salary as an independent business consultant.