You may think that this is a bit of a dry subject! It is BUT it is very important! And you may think that as you are not selling your business and have no intention of doing so, it will not apply to you!
Wrong!!
You may be getting to the age where retirement is looming (a baby boomer), you may be coming to work tomorrow and be involved in a fatal or near fatal accident. What then?
Next Saturday you may win Lotto (wouldn’t that be nice!) and decide ‘bugger the business’!!
Your wife/partner may decide that long hours when you are not home to share the chores (putting the kids to bed!) at too much and that enough is enough! She greets you one night with the ultimatum ‘It’s either me or the business!!
Need I go on??
Even if these scenarios do not apply, it is good business to always have your business ready to be sold!!
So what are the steps?
- With your accountant, go over your balance sheet. Look at all the assets and decide what must be updated. For accountants then, this means three things.
- Go over work in progress and cull all that will never be billed or recovered.
- Go through debtors and write off all that are unlikely to be paid.
- Look over your Fixed Assets and get rid of the old, obsolete plant and all other assets that are no longer in use.
- Then create a new, up to date and accurate list of ALL Fixed Assets you intend to sell with the business, together with a value at which you intend to sell. This may mean that you need to get an independent expert valuation.
- Draft a ‘For Sale’ Profit and Loss Account. This means that you will exclude all things that a new owner would not be interested in. Examples are things that you claim for tax purposes but may not be necessary for a new owner.
- Wages for Spouse and children
- Use of home as office
- Some vehicle expenses
- Interest
This should be for at least five years so that a new owner can get a trend of where the business has come from and where it is going.
- Give some real thought as to what you will sell your business for. Imagine a buyer slapping down a wad of cash – you think of the number – and say would I accept that? There may be an industry guideline. Accountants often sell based on a factor (say .8) of their Gross Fees.
- Sometimes it is wise to get your accountant to prepare a business valuation for you. BUT remember that this is matter of opinion and often can be wildly inaccurate!!!
- Remember that if your business is a way of life then it may not be worth much on the open market!!
- Think about what you are going to do when the business is sold! In our experience with Accountants, most have not given this any thought at all!! Will you retire? Will you buy another business? Will you start another business?
- Try and think what makes your business so special?
- Can it run with minimal input from me?
- Are my staff loyal and likely to remain with the business if a new owner comes in?
- What about the things that I sell? Are they unique to my business or simply available from anyone?
- Are my customers loyal to me or the business?
- Am I looking at a declining business or a growing business?
Then draft an advertisement for sale of your business!!
Caution: I am preparing this for an Accountant who wants to sell, but the principles apply to ALL business owners!
This blog post can also be found on the NZ Business website found here:
https://www.nzbusiness.co.nz/article/preparing-accountancy-business-sale
We have been buying/selling/merging & placing high level Accountants into succession planning roles since 2005.
We are the only agency that works exclusive in the Public Practice space.
Contact the team today at Accounting Practices.
Riki Sila
riki@accountingpractices.co.nz or 022 0432 880 or main office 09 363 9584