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10 prerequisites when selling a business
What can you expect when you sell your business?
What can you expect when you sell your business?When Business Broker on the sale of a business, we always start by aligning expectations. It is important that the seller is realistic about the value of their business and understands what it takes to secure the best possible deal.
"If you are considering selling your business, the initial dialogue with Business Broker is Business Broker non-binding. This is where we get to know each other, and you receive a professional estimate of what your company is worth," says business broker Michael Vadgaard Jørgensen from Business Broker.
Here, Michael Vadgaard Jørgensen presents 10 premises that you as an owner-manager should be aware of before you start selling your business. Once you're clear on the ten points, you'll have a good idea of what you can expect in sales proceeds.
1. Preparation is key to a successful ownership transition
Prepare the company legally, financially, and organizationally for a sale. This will increase the chances of an optimal change of ownership. You can read more about sales preparation here, but you are also welcome to contact Business Broker a non-binding dialogue about your company's readiness to initiate a structured sales process.
2. Timing is of great importance
Current company performance, industry developments, new legislation and market cycles affect both value and marketability. Good timing can therefore increase value significantly.
3. Value reflects potential - not the past
The buyer assesses the value of the company based on the earnings that can be expected in the future. Budgets and history are not enough in themselves. An assessment of risks and market potential will also be included. Read more here about professional valuation.
4. Operating assets are included in the enterprise value
Inventory, machinery and accounts receivable are part of the basis for future operations and earnings. They therefore do not have an independent value that can be paid out as an addition to the agreed value of the business.
5. Net proceeds are not the same as company value
Enterprise Value, the value of the company on a debt-free basis, is not the same as the amount you receive at handover. Debt, cash, working capital and the structure of the deal (for example, earnout) affect the actual proceeds. See an example here:
It requires a closer look to make an assessment of what the revenue will be for your business.
6. More buyer candidates provide better conditions for negotiating
A structured sales process, guided by professional business brokers, engages more potential buyers. This puts you in a better negotiating position - and increases the chances of getting an optimal deal.
7. Expect to provide guarantees
Non-compete clauses, warranties and guarantees are a natural part of a contractual agreement. They protect the buyer's investment and are important for building trust between the parties. The seller's warranties only cover the facts up to the transfer date. After this date, the business is operated at the buyer's expense and risk.
8. Clear documentation is essential
Be open about challenges and provide honest and up-to-date accounts, contracts, and other documentation. This will ensure an effective due diligence that gives the buyer peace of mind.
9. Independence from owner creates value
Most businesses have some dependency on the seller (the owner-manager). However, it's important to be able to show a potential buyer that the business can be run without the day-to-day involvement of the owner-manager. A business that can be run without the day-to-day involvement of the seller is more attractive to a new owner. At the same time, it's positive if you can demonstrate that key employees are willing to continue with a new owner.
10. The right transaction model is important
We always recommend that you use competent advisors with experience in the transaction field. Small adjustments to the contractual basis and the transaction model can make a big difference to your net proceeds after tax.
Want to know how to prepare for a change of ownership?
Business Broker owner-managers on the sale of their businesses. We work in a structured and confidential manner and obtain indicative offers from several potential buyers with a view to achieving the best possible deal. We have completed over 200 transactions and always work in teams, where you will meet experienced advisors with industry insight and proven negotiating skills. Read more about us.
