If you want to try selling your business, then ideally you want to meet certain conditions. Businesses need three good historical years, with a forecast projecting positive growth. Too often, however, the projected results are out of proportion. Read on to learn what business owners must consider when they are selling their business.
No New Major Investments
It is important to ensure that the fixed assets, such as machines and installations, do not require large (replacement) investments. Optimizing a business for sale implies that no major investments are needed during or shortly after the sale of the business because it will create a false impression on buyers.
Stable Customer Base
The next point you need to consider when optimizing your company for sale is to prevent major recent or foreseeable changes in the customer base or among the personnel, especially when it concerns important relations or persons. In addition, a large dependence on one or a few customers should be avoided if possible, because this increases the business risk.
In general, selling a company that is not distinctive will result in lower transaction income and less favorable terms of sale. The highest prices are paid for companies that add more value for a buyer than sales and personnel alone. The advice is to regularly test the activities of the company so you know whether your company is distinctive enough compared with your competitors.
Fiscally & Legally Optimal
If you want to optimize a company for sale, it must be part of a legal structure that allows for favorable tax settlement. In many cases, this implies a personal holding company above the operating company (s). In this structure the sales proceeds fall under the participation exemption and end up in the personal holding company without paying taxes. Make any necessary changes to the legal structure well in advance of the company’s sale. The tax authorities only accept some changes on the condition that there are no other changes for a certain period of time.
Emotions are more often the reason for a failed transaction than due diligence. This may seem like an open door, but negotiations are more likely to stall due to emotions than “skeletons in the closet” during the due diligence investigation. Of course, it is slightly different if during the investigation it appears that the information received is incorrect and you confront the seller with it. If there is an emotional reaction to that, it is a sign to be careful. Make sure you turn your emotions off and trust your experience.
It takes a lot of extra energy for an entrepreneur to continue to run his business while selling it. Every sales process has unexpected twists. Buyers tend to respond in a way that an entrepreneurs find unpleasant. In order to clinch a sale, the main focus must be on the company.
A good advisor is the director of the sales process and not just a ‘source of information’. He will still need the entrepreneur on a regular basis. However, by directing the sales process he can prevent the entrepreneur from getting too much on his plate. Last but not least, it’s key to emphasize the strong points of the business without exaggerating. Always make sure you don’t oversell by providing information about your company which is not true. In the end, the truth will always prevail so be transparent and trust your experience. This will smooth the sales process significantly.