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Make the sale of your enterprise easier on everyone
June 4, 2009
By Nikki Viljoen
Suitegum Business Brokers' Mark Corke says trying to sell a business that is not prepared for sale does the business, the seller and the buyer a great disservice. This is something worth thinking about if you intend putting a for sale sign outside your small enterprise.
Just as you needed a business plan to map out the direction you want to take your business, you also need a plan when it's time to dispose of it. As the seller, you need to present the prospective buyer with a set of financial records that go back three to six months at least, to show where the firm has been.
Records that stretch back to the day you opened the doors are ideal, as they are a clear indication of how you have grown and sustained the business. For credibility, these records should have been signed off by an accountant or auditor. The prospective buyer's biggest concern will be that he or she is conned out of hard-earned cash. The most effective way to allay these fears is to show that the business has been compliant with the relevant legislation and policies.
This means that as an employer, you should be up to date with taxes such as business tax, value-added tax (VAT), pay as you earn (PAYE), Unemployment Insurance Fund (UIF) and the skills development levy (SDL). These should be shown in the financials as evidence not only are that they present and correct in enterprise's books, but that they have been paid to Sars, in compliance with laws regulating the businesses. This is because if you are honest in your dealings with Sars, you are more likely to be honest in your other dealings.
One of the easiest ways to find evidence of a company's turnover is by looking at your VAT returns. Buyers know that the most trustworthy figures are the ones reported to Sars. It is unlikely that these figures will be inflated, because logically speaking, no one would inflate their figures to Sars as this will just invite more taxes.
The financial records and VAT returns should thus be presented, together with the provisional and year-end tax figures, and the monthly PAYE, UIF and SDL returns.
The Companies Act of 1973 requires that an asset register be made and maintained. This is not only lawful; it is needed by the bookkeeper to ensure that depreciation is correctly calculated. What better evidence than that to give to your insurers? When it comes to selling your business, it's a great way to supply the prospective buyers with evidence of what they are buying.
I often say: "It is easy to make money, but making a profit is altogether a different kettle of fish." It does not make much of a difference what kind of turnover the company makes; if it is not making a profit and lacks potential to do so, the chances of finding buyers will drastically shrink. The main reason people go into business is to make money.
A shrewd buyer will not be swayed by the company's turnover. He or she is likely to be interested in a steady increase in net profit, evidence of consistent growth, good control of expenses and strong cash flows. These will always have a positive effect on the valuation of the business.
Having a documented set of policies and procedures gives credibility to the company's structures. It also increases the value of business as it shows that it is run efficiently and productively.
Clear staff job descriptions indicate that there is a separation of duties, so the duplication of tasks is unlikely, thus minimising possible errors.
This means that productivity is likely to be high, something that may affect the firm's bottom line. Having these administrative policies in place adds value to the business as the buyer will save money, time and effort.
Nikki Viljoen is an internal auditor and business administration specialist. Contact her on 083 702 8849, nikki@viljoenconsulting.co.za or http://www.viljoenconsulting.co.za
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