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How To Get The Most From The Sale Of Your Business

Your business is your asset of value. This has been your life’s work, and you certainly don’t want to cash out too cheaply. Here are 5 key tips for getting the most from your sale.

Chris Staines

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If you’re thinking about selling your business, there are a number of different buyers you can approach, from equity investors to competitors. No matter who the buyer is, consider these five points as you approach the large and important task of selling your business.

1. Choose the right time of year

What we are talking about here is the right time in your Financial Year. Most businesses we sell are valued on a multiple of after-tax earnings — but the question always comes up, “To which earnings will the multiple be applied?”

If, for example, your year-end is February (2018 financial year), and you consider selling your business anytime in the six months after that, then there can be little dispute that a buyer will apply a multiple to your 2018 after-tax earnings to arrive at a value.

But what if it’s now, say, October 2018 (2019 financial year)? And you are having a markedly better year than 2018? Even though you have not completed your 2019 year, there is definitely a case to be made that the value should be based on the results you expect for 2019 rather than those you achieved in 2018.

Given that it generally takes anywhere from four to six months to sell a company, by the time you are getting close to completion chances are that you will have 90% certainty on what your 2019 result will be anyway.

Related: Selling Your Business To Your Business Partner

So, our advice is always to try and ensure that the multiple agreed is applied to future earnings where you can make a case for their being achieved (usually within the last six months of a financial year), and then to provide for an adjustment (either up or down) where the actual 2019 result comes in slightly different to your forecast.

2. Normalise your profits

profitsWhen we sell private companies, we generally find that multiples fall within the range of five to seven times after-tax earnings. Clearly this is a generalisation, and many companies are also valued using a multiple of pre-tax profits, EBITDA or even a multiple of revenue.

The point is in valuing a company, and where a multiple is applied to ‘profits’ rather than revenue, for each and every rand you can add back to ‘profits’ you will receive multiple times that in sale consideration.

Adding back certain costs to your profits is called ‘normalising’ your earnings. In most private companies, there are numerous expenses that go through the books that frankly the business could do without. Some are once-off expenses, and some could relate to the employment of a family member who really does very little in the business.

Before you present your after-tax earnings to any prospective buyer, it is vital that you go through all the costs in your business and review whether these could in fact be excluded. Ask yourself — are these a ‘normal’ recurring business expense? If you can make a case for their exclusion, then remove them from your profit calculation and note down the reasons why. When the time comes to apply the multiple you both agree is appropriate for a business such as yours (and which is a science in itself) you will be sure you are then extracting maximum value.

3. Opt for an earn-out

When you sell your business, many buyers might be nervous about simply paying the full asking price up-front. They know little about your company, they don’t have the relationships with your suppliers or customers — let alone your staff.

By the same token, many sellers might be disappointed by the price they can achieve for their business when sold for a once-off consideration. The risks the buyer perceives as outlined above can often translate into a lower multiple being applied — below what you would consider as fair.

The answer to the above conundrum is to consider an earn-out — a solution that can work equally well for both parties. Essentially an earn-out requires the buyer and seller to agree on an up-front value for the company, and then for the buyer to agree to only pay a percentage of this immediately. The balance of the consideration can then be paid over a one or two-year period (or longer depending on what is agreed), and will be calculated by applying a multiple to the actual profits earned in those years.

Needless to say, there is no vanilla way for an earn-out to be calculated, and many refinements can be made to the calculation of the future consideration. For example, we often see buyers prepared to offer increasing multiples for future years, or even increasing multiples where profits exceed certain agreed bands. There are also often caps and collars applied to the consideration — the collar to ensure that the consideration never falls below a certain agreed amount, regardless of actual profits earned (to protect the vendor) — the cap to ensure that the consideration payable is never greater than a certain agreed amount (to protect the buyer).

There is no doubt that an earn-out is the best way to extract maximum value for your business — but beware the complications of such mechanisms. There has been many a fall-out between buyer and seller particularly over the calculation of profits during the earn-out period — thus impacting the consideration that both parties feel should be paid. The ‘rules’ of how the business should be run during the earn-out period, and who gets to decide on levels of expenditure need to be written extremely carefully into the purchase and sale agreement.

Related: 20 South African Side-Hustles You Can Start This Weekend

4. Sell your company not your business

When buyers are considering making an offer for your company, what they actually mean is that they like your business — but don’t necessarily want to purchase the actual company in which it is housed.

Many companies that come up for sale have been trading for many years, and it’s possible that there are certain ‘gremlins’ (such as hidden actual or contingent liabilities) within the company that the buyer might not be aware of — despite the warranties and representations that the company owner will be required to give at the time of sale.

We often find that buyers prefer to make an offer to buy the business out of your company, rather than take on the company itself. Whereas this might at first sight seem to make no difference to the vendor, the reality is that they could end up paying considerably more tax than if they simply sold their company.

At the time of writing, where an individual simply sells his company, he will suffer capital gains tax of 18% on the gain. If, however, he sells his business out of his company, then the proceeds of the sale will not go directly to him, but rather to this company instead. The proceeds of the sale will thus attract corporate tax within the company (say at 28%) and the vendor still has not got the cash into his own hands. To do this the company will now need to declare a dividend for the proceeds of the sale, and this in turn will be taxed at 15%. The result of the above is that the vendor might only see just over 60% of the gross consideration from the sale compared to over 80% had he simply sold the company.

Obviously, tax positions vary for companies and individuals (and also trusts), but there is no doubt that the prospective vendor should seek advice before accepting any offer to make sure he nets the most out of the sale he can.

5. Remove excess cash

This might seem like a fairly obvious one, but it’s surprising the number of company owners who potentially leave too much cash in their business on sale.

When a buyer makes an offer for a business, their expectation is that the vendor is leaving sufficient working capital in the business to earn the future profits for which the buyer is paying. So, one of the key calculations that must be done prior to sale is a review of historical working capital to see what this ‘sufficient’ level actually is.

What we often find is that the cautious company owner runs his business with a good deal of cash sitting in the bank — mostly to help him sleep at night and so not to have to worry about the peaks and troughs of day to day cashflow.

The danger is that the buyer comes to view this level of cash in the business as ‘normal’ — and hence their expectation is that this level of cash will also be sold with the business. The reality, however, might be that the company could actually run on much less working capital, and any troughs in the cashflow could be covered through a small overdraft (without threatening the value of the business or adding to its risk).

Before considering the sale of your company, it is therefore worthwhile having a look at your working capital position, seeing whether you could apply for a small overdraft, and then removing as much excess cash as possible prior to the sale by way of dividend. As long as you can make a case for the business having sufficient access to working capital to deliver the future profits that you have promised, then this step should not be an impediment to the sale. And the excess cash you withdraw is of course more cash in your pocket when you come to add up the total value you extracted from the sale.

Chris Staines has more than 25 years’ experience in company divestments, partial divestments, joint ventures, mergers and acquisitions. He has sold more than 60 private companies in the $1 million to $100 million range, and has worked across three continents. Chris is currently Head of Corporate Finance at Grant Thornton in Cape Town.

Techniques

5 Signs Your Customers Have Questions You Aren’t Answering

You may be causing confusion somewhere in the customer journey. And confused customers don’t buy.

Sujan Patel

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When you come to my website, the first thing you see is me, a description of what I do and a button that encourages you to click on it. There are no surprises, no guessing where you should go next. I’ve laid it all out right in front of you.

Not all businesses make things this clear. Some have too much clutter on their homepage, overwhelming visitors with information. In fact, 75 percent of consumers polled in research by Stanford said that they judged a company’s credibility by its website design.

Such lack of clarity doesn’t apply just to websites. This could be a problem in your emails, your sales process, even your physical stores. And a  lack of clarity is troubling, because it confuses your customers, and confused customers don’t want to buy from you.

You need to make sure your business is focused on ensuring a positive experience. That means making sure no customer question is left unanswered.

Not sure if your business is suffering from a lack of clarity? If you recognise any of these five signs, there’s a good chance your customers are confused.

1. Your website stats seem off

We tend to assume that most people know what to do when they come to a website. But if your website is unorganised or cluttered, customers may not know where to go when they get there.

Maybe the customer wants to call you, but your contact information is buried. Or maybe he or she wants to purchase a product directly off your site, but the checkout process is too clunky.

If something on your website is off, your stats are going to show it. You’ll probably see a lot of visitors but not a lot of return visitors, and the amount of time they spend on your site may be low.

So, how do you fix it? Go through your website with a fine-toothed comb. Have someone unfamiliar with your site go through it and give you feedback. Put yourself in your customers’ shoes and look at the site from their perspective. How can you make their experience on your site as smooth as possible?

Related: How To Win Trust And Wax Sales

2. The customer is indecisive

When customers are in the decision phase, you want to do everything you can to seal the deal and push them along with their decision. If they’re waffling or can’t seem to make that decision, there’s something wrong.

It could be that they don’t have all the information they need. If they’re confused about something, it’s your job to set their mind at ease. Make sure you’re open with your customers, and offer help with any questions or concerns they might have. FAQs, live chat options, videos and product resource pages can help tremendously here.

3. The customer doesn’t know how to use the product

customer-products

Is there one question that keeps coming up again and again from your customers? If you’re constantly getting the same question about your product or service, the answer needs to be clearer.

Customers shouldn’t have to call in to your support team for simple issues. You need to make it easy for customers to use your products and services. That means offering to help set things up for them and properly onboarding and training them in your product’s use. The more you can prepare your customers and anticipate their needs, the more satisfied they’ll be.

4. The customer is complaining

According to a survey by American Express, seven out of ten consumers in the United States have spent more money to do business with a company that offers great service. Excellent customer support is key to the success of your business, and without it, customers will be unhappy.

When customers are unsatisfied with the level of service they’re receiving, you’ll hear about it. If you’re getting a lot of complaints or seeing a lot of product returns, there’s probably something wrong.

To avoid getting an earful, you need to get to the root of the issue and find out the cause of your customers’ unhappiness. Is it your customer service team? Slow shipping times? Or something deeper? You may be causing confusion somewhere in the customer journey.

Related: How You Can Guarantee Customer Satisfaction

5. Sales are down

If you aren’t selling, something is wrong. It’s as simple as that. If sales are consistently on a decline, you need to go back and find out where the problem is.

Customers want to know what they’re getting into when they make a purchase. You need to make it clear what you offer, why customers should buy from you and how exactly they can go about buying.

The key here is clarity. Customers aren’t going to jump through hoops to purchase your product. You need to guide them through the sale by ensuring their questions are answered before they’ve even asked them.

This article was originally posted here on Entrepreneur.com.

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Company Posts

On Top Of Their Game

Innovative and focused on always providing superior solutions to the energy sector, Karebo Group works with top-quality providers to ensure 100% service delivery to its clients.

TomTom Telematics

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As a provider of dynamic professional services and products to the energy sector, Karebo Group’s core focus is delivering high-quality services and products to its clients.

“Our team has a long-standing and proven track record within the energy market,” says Ravi Govender, owner of Karebo Group. “Our in-depth knowledge and experience enables us to offer innovative and superior solutions to our clients. As a team, we thrive on the intellectual challenges that energy markets present.”

Karebo Group’s value proposition is to always deliver within time and budget, 100% customer commitment according to contract; operations must deliver consistently; and the entire team must be committed and 100% professional in delivery.

Because Karebo Group provides a turnkey solution to its clients, managing its own fleet enables the team to provide the best and most efficient service possible. “We’ve learnt the benefits of controlling the entire value chain,” says Ravi.

“In the past we have outsourced our logistics, and it impacted both our costs and our service delivery. By managing our own fleet, we can reduce costs and have happier clients.”

Cost-effective solutions

Karebo’s customers face significant challenges related to energy costs, which means it’s essential for the business to offer its solutions as cost-effectively as possible. Controlling transport and logistics costs is one way to do this, but it’s just one factor that the business considers. “We have solutions for all of the cost challenges that our customers face,” says Ravi.

Related: Is It Time To Consider Renewable Energy To Power Your Business?

“The problem is that while these solutions have a great return on investment, the ability to raise or channel capital to them is a challenge. General market conditions are also contributing to the indecision on allocating limited capital to these projects.”

In response, Karebo has overcome many of these challenges by assisting its customers to raise their own capital for projects. “We have moved the conversation from a CAPEX conversation to an OPEX conversation,” he explains.

The TomTom Telematics Difference

In order to keep its own operating expenses as lean as possible, it’s essential for Karebo to work with suppliers who understand their business and its needs. “We’ve been working with TomTom Telematics for three years and in that time we’ve reaped the full benefits of using the system to its full potential.

“WEBFLEET’s features include loading orders, geofencing, tracking and reporting, all of which have assisted us in optimising routes and working efficiently to see more customers, thereby increasing productivity.

“The order dispatch features via navigation device enable our teams to keep to their schedules, while address-visit reports help our teams to be more efficient by eliminating unnecessary visits to the same locations. The onboard navigation system also assists in communicating with our teams via a messaging service — teams can message our head office via the system if they need immediate assistance with correcting addresses or if any vehicle maintenance required. In addition, head office has a full view of the location of all of its teams across Africa, at any given point in time.”

According to Ravi, TomTom Telematics has played a significant role in the overall business, not just in terms of monitoring vehicles, but on bottom line costs as well.

“We chose TomTom Telematics based on its services, which met our specific requirements. Thanks to WEBFLEET, our company has seen a reduction in fuel costs, increased productivity and vehicle maintenance costs have been reduced as we place all driver behaviour reports on our company chat to correct driver behaviour.”

The leading edge

Ravi Govender was part of the national steering committee that put together the M&V framework that the original Eskom DSM programme was measured against. He also led the UKZN M&V team from January 2002 to December 2003 before joining Karebo in 2004.

Related: How do I start a retail energy business with Eskom being the only provider in South Africa?

Since joining Karebo, Ravi has ensured that his passion in developing solutions that transform and promote DSM has helped to place Karebo at the forefront of energy efficiency in South Africa.

Under Ravi’s leadership, Karebo has been focused on increasing the penetration of DSM in the South African environment and beyond. As a result, Karebo has been involved in several notable projects in this arena, including developing the framework and methodology to develop and implement large-scale mass rollout programmes.

Karebo pioneered the mass rollout of CFLs for Eskom and through this foundation several other programmes that been implemented, from the mass rollout of solar water heaters and residential mass rollouts, to developing the first large-scale LED programmes that were funded by Eskom. At that point it was the first and largest LED rollout approved anywhere in the world.

Karebo was also involved in both of Eskom’s Residential Mass Rollout phases; was contracted by the World Bank to assist Malawi on an advisory basis for the first CFL programme rolled out in that country; and was recently appointed by the EU through the European Commission to implement Solar Power Lighting to Communities and Schools in Lesotho.

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Techniques

How To Win Trust And Wax Sales

Small changes to your ecommerce platform could transform your turnover.

Daniella Shapiro

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Any ecommerce business venture is risky. Your products are not going to walk off the site by themselves from day one.  You have done your market research. You have identified and targeted consumer needs. You believe in your product.

What you need now is for consumers to believe in it too. But that is not enough. Your consumers also need to believe in you and your brand. Your ecommerce platform is the vehicle which allows the consumer to experience an insight into the quintessence of you, your product, and your brand.

Take your ecommerce experience from ‘what?’ to ‘wow!’.

The voice

Your ecommerce platform is a place that gives you, your brand and your products a voice. Your voice needs to speak out and tell your story. How you came to this point with your product. How and why you know it is the best on offer. Who you are.

What your brand stands for. Drive engagement with your voice through blogging. Show your investment in remaining relevant and meeting consumer needs. Invite feedback to build diversity and growth. Your products need a voice too, but they cannot speak for themselves. Let customers know your products’ worth by offering clear, detailed, jargon-free descriptions.

Give your customers pictures. Lots of them. From every angle. Show what you and your products are made of. Bring your products right into the customer’s home. If your products have got it, flaunt it. Convey an effective message that unites you as creator, your creations, and the lifestyle your brand is offering.

Authenticity, honesty, and clarity of purpose will connect the consumer to your brand in a real and relevant way.

Related: The Future Is Now – Ecommerce Retail Trends For 2019

Tell all, on call

Respond to consumer enquiries with as little delay as possible. These are personal interactions with the consumer that build relationships. Excellent customer service boosts positive feedback. Aim to provide as much detailed information about your business as possible. Be transparent, and proud of it.

An FAQ section is professional and helps address recurring questions regarding your products, services and business practices. Use the opportunity to provide further info about your brand’s integrity and professionalism. Refer to certifications and licenses. FAQs indicate honest, reliability and well-established business procedures, which further builds consumer trust. 

The allure of secure

A steadfast returns policy cuts the risk for consumers when making a purchase. It is far easier to commit if you are assured you can return the product with a full money back guarantee. Make this policy evident from the outset. Include a link to your returns policy on your landing page. Address all returns related queries in your FAQs. Consumers will also trust your ecommerce platform if you guarantee safety and security of information.  

Less is more!

Shipping costs are a turnoff. Many consumers abandon their carts just at the finish line because of this final hurdle. So, offer free shipping and seal the deal. Discounts and sales items must be in your face. Feature deals and reductions on your landing page with hard-to-miss, easily understandable images of slashed prices. Build some buzz around sales items with a sense of urgency.

Small trial samples in exchange for email details or a quick survey are another sweet deal. Everybody loves a sample. And you score business leads to follow up. The info you gather can help you to personalise user experience, and fine tune focused target marketing.

Related: Tips On How to Build Your First Ecommerce Business

That big red button

We have all encountered an enticing call-to-action button. One that offers the promise of a new start, that opens doors, that kicks in the rush of actualisation. A CTA that makes the customer feel like that button has their name on it is what it’s all about. ‘Buy Now’, ‘Add to Cart’, ‘Get Started’. The brand and lifestyle you are selling needs its own effective CTAs. They are the final frontier between deliberation and diving in.

The quick or the dead

First things last: Your ecommerce site had better load, and fast. This is vital. Already, 5 years back, failure to load with sufficient speed meant 1.73 billion GBP in lost sales. Consumer impatience is a fact. There are loads of options out there. Don’t be left dead in the water.

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