The time for selling a business is always likely to be a stressful period. You have to face up to retirement, or a change in circumstances, and letting go of what has been a great interest in your life. It is also the time you find out if the market agrees with you as to the real worth of the business

If you are going to have a successful disposal of your business, you need to be clear in your own mind as to what it is that you want to sell. Then you need to be sure as to how to make a purchase attractive to a buyer, if indeed there is likely to be a buyer out there. This means you need to plan well ahead. That will enable you to get the business in a good condition for a sale and will enable you to get your financial accounts in order.

This article is being written for the New Zealand Printer so I will assume that it is a printing business that you are going to want to sell in two, three, or four years time. Do you want to sell the shares in the existing company? On the other hand, do you want to sell the business that is owned by a company? Either way there could be income tax benefits or drawbacks and GST could become a factor. What this means is that you need to see your financial advisor and work out the best way to deal with a sale.

My natural preference is to sell the business and not the shares and this is certainly more attractive to buyers. If they buy the shares, they will be liable for any unknown claims or costs that arise after the sale has been settled.

If you were selling the shares, then buyers would see all the financial accounts including the statement of position, which would include the present book values of the plant and equipment. That information is best kept confidential.

The printing industry is always facing changes and improvements in technology. If that affects your particular business then you will have to be able to show any buyer that your equipment will be up to the job and they will not need new gear for a few years.

Another matter of real concern is what skills buyers will need to enable them to make a success of running the business. It may be there are skilled staff members who will switch to the new owner, so the owner will not immediately need special skills relating to the printing industry.

Of greater concern to potential buyers will be the profitability of the business. A business just making wages for an owner operator is worth a lot less than one making real profits, which will give a return on the investment.

There are different ways of valuing a business and the most likely one is based on the pre-tax profit return on the investment after allowing for market salaries for the owner.

Anyone advising an interested buyer will want to see the last three years financial accounts. They will need to pass the buyer’s own advisors queries and that means your accounts have to be in order.

Any special family perks or allowances should stop. If you own the premises, you should apply a market rent. If you run an expensive motor car on the business, you should remove it. All these things add to the costs and reduce the profits. It is the profit that will interest the buyer.

These are just a few of the reasons why your accounts need to be in order so that they create the right impression for a buyer.

A word of caution: do not disclose your statement of position to possible buyers of the business. If they are happy with your suggested price of say $800,000 for all the equipment their view of the value will change if they find the book value is only say $150,000.

Just how to find a buyer is a different matter and I have only dealt with putting your business in order before trying for a sale. Discuss your plans well in advance with your chartered accountant and do not sign any contracts without your lawyer’s approval.

There is nothing to fear about selling a business, but you need to show that you have something that another person will want to buy. First move is over to you as you think about what you want to do, but then go and see your chartered accountant.