As competition escalates in South Africa’s retail sector, this could be the ideal time for owners to sell their shop and retire, or find success in a different industry. Here are some tips on how to get the best price for your business.
It’s very difficult for a shop owner to determine the value of their store due to the personal connection you have to the business. Hire a broker or contact your accountant and solicitor to help you determine a fair, realistic and impartial valuation that will attract serious buyers.
Certain factors will contribute to the value of the business; if you plan to sell your store with a lot of inventory and equipment, this will increase the value. Fix any broken equipment, signage and shelving before you market your shop to get the maximum price for your assets.
A common method for determining an accurate value is multiplying your annual net profit by a figure between 0.75 to 1.5. The multiplier is determined by current market conditions – whether it is a buyer or seller’s market – and how eager you are to sell the business.
There are several different valuation approaches; the discounted cash flow (DCF) method uses projections based on the shop’s future cash flows. DCF takes inflation into consideration to calculate the present value, whereas the profit multiplier method doesn’t.
If your store is in an excellent location with a high footfall this will increase the value. The lease terms and conditions could also raise the price depending on how beneficial the contract is to a new buyer. Entrepreneurs may also pay more for a shop with great goodwill.
If you’re hiring a broker to help with the sale of your business, you should consider how much experience they have and what sector they specialise in. Appointing a broker that works within the retail sector means they could come with a list of valuable contacts.
Find out whether your broker can carry out due diligence checks and if they have any references you can look at. When choosing the right broker, consider how many deals they have handled and their qualifications, as well as their fees, knowledge and enthusiasm.
You should have a meeting with your accountant or solicitor to discuss the sale and get their advice. Throughout the selling process you will have to make important legal and financial considerations; consult experienced professionals to guide you through these decisions.
You will need to have your recent financials audited before showing them to a prospective buyer; make sure the last three years of accounts and tax returns are readily available. You should deal with any outstanding issues with The South African Revenue Service or lenders.
If you’ve hired a broker, they can advise you on how best to advertise the sale of your business without disclosing the shop’s identity. However, if you’re keen to handle the sale of your business alone, advertising online will be the fastest and most extensive method.
Consider your immediate network or friends and family, as well as the contacts you’ve made while you’ve been working in the sector. If you plan to keep the sale confidential, express the importance of privacy to any potential leads before you discuss the business proposition.
Advertising in trade magazines or local newspapers could attract buyers depending on your location. You could tell your customers about the sale if you feel it wouldn’t negatively affect the business; you should inform your employees before making the sale publicly known.