Monday 26th of April 2021
Passionate entrepreneurs build businesses with a lot of love and hard work. The mere idea of sell
...ing it makes them restless and leads to avoiding s...
Passionate entrepreneurs build businesses with a lot of love and hard work. The mere idea of selling it makes them restless and leads to avoiding successful exit planning. However, the issue must be addressed at the earliest to prepare for the sale and generate a significant return on investment. Although digital media has made it easy to sell a business, there are still some hurdles in the pathway.
Entrepreneurs who plan to sell their businesses to competent and financially capable individuals must assess the challenges in the process. It ensures their prized possessions are handed over to deserving people with the desired abilities. Here is how entrepreneurs can effectively evaluate the risks associated with selling their businesses. Avoiding these challenges helps increase sales returns and boost satisfaction levels.
Since founders have emotions and personal savings attached to their business, they consider it highly valuable. They may want to get the industry-best price for their company, but it is not a realistic goal. If the asking price is too high, it will turn away potential buyers and reduce leads because of affordability and fair pricing.
Conversely, if it is priced too low, buyers may become sceptical about the health of the business and drop the idea of purchasing even before due diligence. Pricing can become a big hurdle in the path of selling the business. Thus, entrepreneurs must ask the accountant to conduct the business valuation using the approved accounting methods and keeping in mind the market trends.
Buyers looking for a business for sale in New Zealand first check the turnover of the listed entities and then start their enquiry. The financial health of the business is even more important than its location and commercial lease. Thus, entrepreneurs must maintain a positive cash flow at every stage of the business lifecycle to improve sustainability.
A few rough patches in the financial history are normal. However, consistent dismal performance and low sales equate to a failing venture, which is unattractive to buyers. A low-performing entity will not get the desired ROI and may take years to sell.
Many workers feel uncertain about their jobs when a business getting sold. They start resigning, and the trend spreads like wildfire, creating an empty office. Thus, entrepreneurs must avoid advertising the company's name when creating a business listing.
It keeps the news of the sale under wraps until the employees are taken into confidence and informed about the change in management. When they are kept in the loop, there is no doubt about job uncertainty, which reduces employee turnover.
Selling the business is a time-consuming process that requires creating the listing, addressing enquiries, assessing potential buyers, planning the handover and preparing the paperwork. It needs the assistance of the accountant and lawyer who manage the complex affairs.
Thus, busy entrepreneurs who wish to retire need to implement time management strategies for assessing potential buyers and finalising the terms of the sale. They can ask a few of their managers to provide support and help in the process to reduce the workload and streamline the tasks.
Entrepreneurs are not aware of the taxes that apply to the sale of a business and get caught off guard. They must check the tax obligations related to the sale, such as paying GST if both the buyer and the seller are GST registered.
Also, income tax is applicable to every asset getting sold. Asset sales are different and may have unique tax obligations. It is vital to get the taxes calculated by a professional to determine the right amount and claim deductions.
When there is no exit planning, the business is unorganised. It can make the handover messy and challenging. Business owners must put all the files and historical data in a repository and create a workflow for easy comprehension of the policies and processes for the buyer.
They must organise the business and prepare a training module and operations manual to make the buyer understand the business model, structure, working procedures, standardisation policies, terms of different contracts, financial statements, etc.
Entrepreneurs must determine the payment terms before the selling process begins. They must opt for upfront payment instead of instalments or deferred payment. The latter depends on the profits generated by the business under the new owner, and thus, is uncertain.
If the new owner is unable to maintain the same cash flow and becomes unsuccessful or bankrupt, you will lose the expected money. So, if you are planning to put up your business for sale in New Zealand, choose the upfront payment option.
Entrepreneurs who are unprepared for the sale do not prepare the non-disclosure agreement and provide all the classified details to potential buyers. However, this can adversely affect the business as competitors can access confidential business data and steal unique ideas.
Losing significant data related to core competencies can affect the unique value proposition offered by the business and make it vulnerable to high competition. Thus, it is vital to make the potential buyer sign the non-disclosure document before discussing anything.
Even if it is an urgent sale, entrepreneurs must refrain from selling the business without a background check of the buyer. It is necessary to pre-qualify potential buyers to eliminate those who cannot afford the asset or are not skilled to take it forward.
Carefully examine the professional records, credit history, financial standing and funding of the buyer to ensure you are not deceived. Screening leads helps to identify qualified buyers and utilise negotiations to get the best price for your business.
Wrapping Up
Preparing for the sale must begin five to seven years before the actual sale. It is imperative to price the business correctly, and following a systematic procedure to advertise and sell it is imperative. Use the tips mentioned above to avoid risks that can affect the returns.
Competition is what makes businesses maintain quality and offer the best service. The entrepreneur may perceive it as a threat, but it works like a...
Strategic planning is integral to business growth because it helps set the path to success. It is the process of defining the vision and end goals of...
Business2Sell is one of the biggest and trusted marketplaces for buying and selling businesses in New Zealand. Our website is visited by thousands of buyers and sellers every day and offers wider reach and visibility. We are committed to serving our clients with cutting-edge technology and value for money.
