09 June 2008

2008

Misinformed Sellers In For a Big Surprise

Everyone who owns their own business believes their little empire is a gold mine. Never mind that it isn’t making any money, when the time comes that they want to sell it, they firmly believe some "naive little buyer" is going to come along and pay them an enormous price – in cash – and how dare he doubt the profit and ask to see provable figures. I do, however, have sympathy with sellers. They are expected to give potential buyers confidential information about their business before getting any commitment at all. Understandably, they fear financial ruin should the information fall into the wrong hands and they don’t make the sale. It makes no difference at all that the house next door is for sale. But it’s very different when the for sale signs are up on the business next door. Competitors cash in, creditors withdraw their credit, customers, their custom and staff become unsettled and look for other jobs. Ironically, it is this very lack of information that stops a seller getting top value for his business. If financial details are not forthcoming, buyers grow suspicious and doubt the credibility of the seller. Often sellers are remiss in not declaring all cash sales. But you can’t have your cake and eat it. If you are unable to prove certain profits, you can’t expect to be paid for them.



How to break the deadlock.

Onto the scene, comes the buyer’s mini-prospectus mentioned in part two of this series. The seller can now see that the buyer is genuine, has the necessary skills and can raise the finance. Next, the buyer signs a confidentiality agreement undertaking not to disclose information to anyone without the sellers permission. Now the seller can safely reveal the business details.



Getting top dollar.

Estate agents decree that to get the best selling price for your home, prepare it for sale. Clean, paint, fix, tidy and see the buyers eyes light up. Businesses are no different. Here are some pointers to getting top value for your business. Remember;

You are in competition with all other businesses for sale within your profit range;

The provable net profit will determine the selling price;

Overprice is and it will not sell;

The longer it is on market, the less chance of getting your price;

Cash buyers are like hen’s teeth – but less common;

You will almost certainly have to allow terms;

Provable figures are essential for a buyer to raise finance against his assets;

The more information you provide increases your chances of the best price;

Sellers should build up prospectuses on their businesses, detailing;

Immediate history;

Present market conditions;

Opportunities that exist;

Provable figures to date;

Budgeted forecasts.

List of plant & equipment;

How the price was determined.

Buyers are not fools, don’t treat them as such, if you want Top Value, you must present Top Information.

Aldes Business Brokers - Contact Kevin Foot on www.kevin@aldesactive.co.za

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