How to prepare your business for sale

Never mind covid, now could be the best time to be buying or selling a business. NZBusiness went to nzbizbuysell’s Richard O’Brien for a market update and some valuable tips.

Many businesses have had their exit plans scuttled by operating constraints and by the economic environment we have been working in, says Richard O’Brien from nzbizbuysell. Business owners now find themselves busy working on their business models and profitability to ensure they have a business that will survive, thrive and sell in the future.

“Fortunately not all businesses have been affected, and there are some great opportunities that continue to be listed for sale. While most businesses have a dent in their cashflow, many have mostly recovered and some have even flourished. Astute business buyers will see past the bruised profits and the effects of the covid lockdowns, and see the true potential of a business. As buyer interest is high, this all points to a great time to sell a business,” says O’Brien.

If you own a business, then you have put a lot of time, effort, and equity into growing your enterprise. And when it comes time to sell your business, it is likely your main objectives are to get a sale and maximise the sale price on the terms that suit you.

“Selling your business will be one of the most important things you’ll do and you get one chance to get it right,” says O’Brien.

When preparing your business for sale it’s important to plan it well, he says. There are a number of factors that will influence your business’s value and how quickly it sells.

“Where possible, plan your exit to ensure you get the best price for your business.”

“No matter what the economy, when a business is being appraised by a perspective buyer they will be weighing up a number of factors when assessing its value. Just as the seller wishes for the best price and favourable terms, the buyer will be wanting to close the deal at the lowest price possible. Therefore, building the value in your business is paramount to achieving the best outcome.

“Where possible, plan your exit to ensure you get the best price for your business.”

The key characteristics that add value to your business are: strong cashflow, a good history and reputation, being a niche business with room for growth, the location, having good plant and systems, being in a growth industry with a competitive advantage, and having good staff, products and services.

The characteristics that can lower its value are: being a business in distress, having weak financials, a small customer base and a poor industry outlook, engaging in price cutting, having key relationships held with the owner, having poor records, systems and plant, and selling dated products or services.

“If possible attend to these before you list your business for sale as they will help ensure you get your best possible price and a sale. It is important you have a relevant, well-organised and systemised business with a future,” says O’Brien.

Market update

The past four months have been the busiest traffic wise on nzbizbuysell in the 20 years it has been operating, reports Richard O’Brien, with traffic up by more than 20 percent.

“While new listings are coming through – they are fewer in number than we would expect,” he says. “We believe this is for a number of reasons. Most businesses took a hit to their profits [during Covid] and business owners are: 

• Tweaking their business model to get it working better, and
• Working on their profitability so they have a better proposition for the day they sell. Obviously if you don’t have to sell, and you want your best price – FIX IT FIRST. 

 Business brokers also had a period when they were unable to get out and work on securing new listings. This, plus “go cautiously as there is an election” and the present business mood of “careful how you go”, have slowed would be sellers, explains O’Brien. “Even though it’s a great time to list as there are lots of active buyers.

“In saying that, there are some great businesses still listing, probably ones that bounced back better than others,” he says. “And these are getting a great response. I have heard from brokers saying they have had businesses with multiple offers – you normally don’t get that.”

The busiest sale categories have been (in order): Service stations, Franchises, Home-based businesses, Liquor stores and Motels.

“We have had a 50 percent increase in people downloading and/or requesting our 50 point Business Seller Checklist,” adds O’Brien. “This could be partly linked to some of our recent content – such as: https://www.nzbizbuysell.co.nz/nz-business/selling/how-to-prepare-your-business-for-sale and https://www.nzbizbuysell.co.nz/nz-business/selling/the-9-steps-to-selling-a-business“