The biggest fear of any purchaser of a business is that she is going to be swindled in the deal. As Peter Carruthers is so fond of saying: “When a man with experience meets a man with money, the man with experience gets the money, and the man who had the money ends up with experience.” Or words to that effect anyway. If you have been in business for any length of time, you will know what that observation means. If you don’t understand, be careful because chances are that you will gain that experience in the future!
So how do we put the prospective purchaser’s mind at rest? The starting point is a single word: Compliance.
As a prospective purchaser of a business once said to me: “If this guy is brave enough to take on SARS by not declaring his business truthfully, and if he steals the VAT paid by his customers and does not pay it across, why would he think twice about defrauding me?” I don’t think that I could have put it any better than that.
There is a myriad of compliance issues that can be examined, and which we will delve into as this series unfolds, but for now I want to deal with four important areas.
Tax returns need to be submitted, we know. And taxes need to be paid, and “strangely” this has become one of the most complied with issues in the last decade and more. SARS wields a big stick, which has made a difference. However, there are still taxes dodgers out there, and without fail these guys battle to sell their businesses at a fair price. The reason for this is that buyers know that the most reliable source of reported figures is those supplied to SARS, simply because they are unlikely to be inflated. By the same token, properly prepared financial statements submitted yield higher values than management accounts, and much higher values than spreadsheet projections.
VAT returns must be on file, and less importantly, VAT receipts. Returns report your turnover, while receipts merely provide the amount that was paid over, and can vary immensely in their relevance from one business to another.
Staff details are usually on file together with the related contracts. Most businesses have little trouble dealing with this, simply because staff members themselves insist on compliance, nagging for their contracts until they are produced and signed! Make sure that you have accurate records of addresses and ID numbers and particularly leave details. When the transfer of your business happens, you will need to know how much leave is outstanding to each of your employees. So take your existing leave schedule, make sure that ID numbers, addresses and wages are included for each employee, and put this into your Prepare Your Business For Sale file and make a pdf copy for your desktop PYBFS folder.
Perhaps the biggest culprit of noncompliance which often becomes a hindrance to transferring a business is the asset register. Even though the maintenance of this register is a legislated requirement, many, many businesses flout this requirement, and thereby commit an offence. But not only do they commit an offence, they also bog down the sale of their businesses unnecessarily. Purchasers of businesses want to know what they are buying, for goodness sake! That’s not unfair, is it?
Something we are going to learn in this series, and hammer it home, time after time is the simple fact that when you sell a business, that business competes with all the other businesses out there that are on sale at the time. So give the purchaser what she wants!
Get your asset register up to date, and put it into your Prepare Your Business For Sale file.