Rasmussen’s 10th Top Tip – Position it to sell.
In this the 10th and final Top Tip to consider when selling your business, Ascent Partners' Richard Rasmussen highlights why vendors need to 'position it to sell.'
By positioning it to sell, I mean developing a business and promotional package that is targeted to your potential market. And the market that is most likely to pay the most money.
So, the first step here is to identify the type/s of buyer that will buy your business –
- What is the ideal profile of the buyer?
- How many of them are they? Where are they?
- How will you make your business attractive to them?
- How will they know it’s on the market?
The Ideal Profile of Buyer
There have been very few of the 30 or so print related businesses we’ve sold, with the exception of print franchises, where the buyer has been from outside the trade. So 'within the trade' there are obviously a number of categories that the business may be suitable for.
Here, you and your advisor, need to do some research into the different profiles of buyers for your business. Try to group them into categories – i.e. fresh starts, interstate buyers, graphic designers, large A1 printers or internal buyers. Each will have different requirements – some may only want the clients, some want the machinery, personnel, premises and IP as well.
How many buyers? Where are they?
Try to also ascertain how many of each profile there are, obviously in many instances your geographic location should be considered as a determinant of how many buyers you may be able to attract.
Once you have done this, look at which profile is likely to value you business the most. Note, usually the best value you will achieve is with someone who wants all of your business. Those that only want bits and pieces will likely only pay market value for that, but quick disposal value for the rest.
Making the business attractive to potential buyers.
This is not about a splash of paint (although in many instances that won’t do any harm). It’s more about putting yourself in their shoes. What do they really want? How can you position it to be attractive to them?
- a. Price and terms
Although price is obviously very important to them, so are the terms they buy it on. No two deals are ever the same; there is nearly always a difference in the terms. Here is a selection of frequently required terms:
- Vendor terms – where buyers pay some money up front and then pay the rest over time, either as a fixed price or on client retention. Vendor terms deals have become more frequent of late because on the tight lending policies of the banks
- Owner to work on – here the owner is contracted to work for the new entity for a period of time. Sometimes this is mandatory. If it’s not offered, the deal may fall over
- Staff – sometimes staff entitlements are part of the deal
- Transfer of leases – i.e. on equipment and or on premises
- Non compete clause – to protect the purchaser’s client bases / business it almost mandatory that the vendor is constrained into where there they can work for a period of time
Obviously this is a very limited list, but serves only to highlight the need to think of what terms you want to sell the business on. Each profile of buyer you have will likely have a “terms profile”. For example for an “internal sale”, they may need you to work on and they may need vendor terms. For a designer, buying a printer, they need all the equipment, staff, and premises.
You need to think of what terms you would or would not accept. Remember though, that price is intertwined with terms. One can, and should be, played off against another –i.e. – if they want vendor terms they should pay more. If they want 3 months rent free, they should pay more.
Obviously price is very important. It’s often the first thing buyers look at when searching for a business. It’s what gets the phone ringing (or not). You obviously want to get the highest price / best terms for your business, but you don’t want to be too overpriced. If you are, your business will stay on the market for a very long period of time.
Make sure you can support your asking price – it’s not good enough to say, “that’s what my accountant thinks it worth”. You need to justify your price. All too often buyers see businesses that are way out of the market realities. A good example of how out of whack some prices are is when vendors make statements about the market value of their plant – e.g. “the 5-colour Heidelberg 74 has got to be worth $XYZ”. Get the facts before you set the price, otherwise you’ll just get blown out of the water and lose credibility.
The asking price of the business is of course not only about the value of plant, you need to also establish a goodwill price. This can be a little complex as there are a lot of things to consider including clients – profile and spread, trading history, sales volumes, profitability, GP, trends, premise availability, market, staff, IP, and product range / mix. There is also what the potential buyer perceives are the risks.
So, here seek advice from someone who can provide market evidence of what like businesses have sold for and on what terms.
- b. Other considerations.
Obviously making it attractive to a buyer is not all about price and terms, you need to be able to present something to them that they value. Think here about items such as equipment profile, sales and marketing, product profile, quoting and MIS systems, IP, staff, the ability to run the business under management, your client list’s growth potential and your web site. Again, some of these will be attractive to some profile groups, but not others, so focus on what’s important to your identified target market.
Marketing is vital
So , now you know who the profile of buyer is, what they want in your business, what terms they may require (and you are prepared to offer), and you have established a selling price based on market realities. Now you need to develop an information memorandum on the business and market it in the right place and right manner to attract the right buyer.
You definitely need to prepare a professional sales document (information memorandum) about the business. Nothing turns off a buyer more than the ad hoc and poor presentation of business documents– get your financials in order and up to date, show that you’re on top of your clients by having impressive client records and systems, show you have a pipeline of business coming through, provide accurate records of machinery and staff. Show you have at least a sales plan and have supporting facts / documents to back up your claims. Put it all in the one document. Tell the story. It’s also important to make sure it is addressed to your target market (in some instances in may pay to have different versions for different target markets). Entice them to take the next step.
You also want to make the business look as good as possible in a physical sense. Viewing a vibrant, clean work place is far more enticing than seeing a down and dirty, tired printery. Money spent here is rarely wasted.
Promoting the business to your target market is also vital. If you’ve done your research properly into whom the target market/s are, the correct promotion choice will drop out easily. Sometimes to protect confidentiality, and perhaps save costs, you’re better selecting just a few potentials first, before advertising.
'Positioning it to sell' is a vital consideration in the lead up to preparing for a business sale, and throughout the process of the business sale.
Good luck with planning your transition and business sale. I hope the foregoing Top 10 tips have armed you with a better understanding of the business sales process, and in doing so, provided you with the opportunity to exit more on your terms and for your price.
Ascent Partners helps vendors prepare transition plans and acts as sales agents to sell printing related businesses around Australia. Contact Richard Rasmussen on 0402 021 101 for a confidential discussion or visit www.ascentpartners.com.au