JOHANNESBURG - You are the proud shareholder of a private company or the sole member of a close corporation, or you have a couple of partners in your company, and you get the idea to sell it.
What do you do? It’s not like you are selling a house or a car. What is the business worth? What will I get for the company that I spent the past 10, 15, maybe 20 years building?
Some (usually the owner) say it’s worth a bundle, and unless you have developed a new or novel concept, the chances are you are not going to get much more than four times your earnings number, if that.
So what do you have to have in place to dispose of this “baby”, your prodigal child that you have neglected your flesh and blood for?
Let us hope, for starters, that you have had the foresight to send your “baby” to a finishing school, that you can marry it off to a king, a prince or an oligarch of substantial wealth…
If not, tsk, you had better get the makeover specialist in, and quick. No one will want to pay top dollar for a supermodel in rags that is unmarketable without a serious investment.
So what do you have to get in place? Get your accounting records in order. Do you have accounting records? Do you have management accounts? Do you have financial statements (prepared by a reputable accounting firm)? Do these financial statements agree with the accounting records?
No, it’s not a dud question . You will be surprised how creative “i(lliterate)diots” can be. Does your company make a profit? Are there assets on your balance sheet? If not, well then we are fighting off the back foot, if you even make it into the ring.
Once the above have been ticked, there are myriad factors to take into consideration, such as:
- Your five-year plan (if you don't have one, get one), your assumptions? Are they valid and reasonable? If not, you are not running with the bulls in Pamplona, Spain, but trying to sell the excrement of the bull.
- Do you have a market? Who are your clients? Do they pay you? How regularly?
- Do you have a marketing plan? Who are your competitors? What are the barriers to entry?
- Where is your company in the product life cycle?
- Who are your suppliers, and what is your track record with them? Will they still be suppliers if you sold your business?
- What are the inherent risks in your business?
- Can the business run without you?
There are 1 000 items to consider and, at the end of the day, it all hinges on a buyer that believes in the business, and if the company can continue without you.
So if you're god's gift to your business, or you are the business, I would venture you can't sell it. You are your own worst enemy. You, Richie Rich, are the reason why you can't sell, and why you might just as well accept that your plundering of the profits is as good as it gets.
To build a business and to want to sell it are very different concepts. Once you decide you want to sell it, accept that you have to spend the time and money on a finishing school. Well, unless you have invested in the next flugelbinder. Happy sales or happy plundering. You can never have both.
Willem Oberholzer, CA (SA), MCom Tax, is executive director at Probity Advisory (Kreston South Africa).
- BUSINESS REPORT