Selling A Business

If you're looking to sell your business, ensure it is advertised on the website that specialised in the listing of professional practices. This way, you can ensure that your practice is advertised to the correct audience.

As the leading and independent website advertising professional practices for sale, practice4sale.com.au is dedicated to helping you attract more potential buyers ... and getting you top dollar for your practice. And, by allowing you to keep your identity and location private, you can advertise with less risk of staff or competitors finding out about your plans, or your financial or operational details.

There comes a time in most practices when the owner wants to convert his or her hard work into cold hard cash.

In fact, statistics show that over the next five years over 40 percent of small business owners intend on selling their business, which means that a buyers' market is rapidly developing.

This means that only some sellers will be able to get the prices they believe their business is worth. One of the ways in which a practice owner can make sure they get the best price is to pay attention to the timing and managing the process well.

Why sell your business?

But first of all, what are the most common reasons for selling a business? The three most popular are:

• Retirement: with the rapidly ageing bulge of baby boomers (those born between 1946 and 1964), this is one of the most common reasons for business owners selling up.
• Time to move on: the business owner can no longer cope with the physical demands of running their own business, or feels they are not getting a reasonable return on the investment and effort they are putting in.
• New challenges: many businesses are started up by entrepreneurs who enjoy the thrill and challenge of starting up a new business, but after a few years want to sell up and move on. Many are on their fourth or fifth business.

When to start the sale process

Frank Sirianni, Managing Director of Medici Capital, a management consulting practice which specialises in the professions, says the best time to start thinking about selling your business is when you start or buy the business. This means that you are, from day one, focused on presenting the business in the best possible way and getting the best possible return. It also means you structure the business, with systems and processes, to make the business transferable to a new owner.

For those who aren't that forward-thinking, Sirianni says the time to start is at least three years before you actually want the business to change hands if you want the best possible outcome. This might seem like a long time, but Sirianni says it is very important because potential purchasers increasingly want to see the historical results and how the business has tracked.

If they look at a your practice's books and see that two and three years ago the results were pretty ordinary and then all of a sudden they start looking fantastic, they are going to become cautious and look to alternatives. Also, in the light of the current credit squeeze, banks are unlikely to lend to buyers looking to buy marginal businesses or unstable ones.

You can use these preparation years to prepare your business for sale. That is, give it a health check and see what modest changes can be made. These can increase the business's value by about 20 percent, so what was a $2 million business becomes a $2.4 million business.

How long does the sale process take?

Business owners wanting to sell up should allow three to six months says Sirianni, ideally closer to six months. It takes about three months to advertise the business and find a prospective purchaser, and then a further three months for due diligence to be conducted and settlement to take place.

Sirianni also says that a growing trend in the sale of professional practices is for them to be sold to someone who the owner already knows. About half are sold this way.

Time of year

The buying and selling of businesses might not normally be thought of as seasonal, but Sirianni says certain times of year are definitely better than others. These are the months of February and August.

The times to avoid are from the second week of November through to the end of January (lead-up to Christmas, Christmas and summer holidays) and from the second week of May to early July (the end of the financial year).

What to Consider:

Selling your business is one of the most important decisions you'll have to make. Deciding how much your business is worth is one of the main issues you'll need to consider. Other factors to consider when selling your business include when is the best time to sell and whether you should make use of a broker or other professional to maximise selling opportunities.

Valuing your business

There are a number of methods for valuing a business, including valuing the goodwill component. To realistically value a business you need a good understanding of the marketplace. Over a period of time an industry usually develops its own rules of thumb by which a business is to be valued. There are also formulas that can be used to arrive at the approximate value of a business. One of the most important factors to consider when calculating the value of a business is its future earning profitability.

Sirianni also suggests that you obtain an independent valuation of the business. This should be independent to the broker's assessment of the business. Under the registration rules for business brokers in most states, they are generally not allowed to provide valuations. Hence, they'll often refer to an appraisal or assessment - not a valuation.

For more information, or enquiries, please contact us on 03 9853 7452 or contact Medici Capital.