Selling or otherwise disposing of a business requires some forethought, strategising and careful implementation. In some ways, it’s a little more complicated than starting a business. For instance, while there is really only one way to start a company, there are at least three primary methods for entrepreneurs to leave the businesses they founded: selling, merging and closing.
Selling the business
Deciding to sell the business you have worked so hard to grow is rarely an easy decision. However, it may be the right one under some common circumstances. Selling may be preferable to owning if:
- You or another owner get divorced and need cash for a settlement.
- Partners who own the business decide to dissolve their partnership.
- One of the owners dies or becomes disabled.
- You are ready to retire and have no heir to continue the company.
- You want to do something more challenging, more fun or less stressful.
- You don’t have enough working capital to keep going.
- The company needs new skills, a new approach or resources you can’t provide.
When is the best time to sell?
If you’re aware of the factors that indicate selling is a good idea, you can time the sale to take advantage of high prices. Usually, you’ll get the most for your company when sales are climbing and profits are strong.
If you have an unblemished history of solid performance, by all means, sell the company before trouble strikes. Other factors that may affect the timing of a sale are availability of bank financing, interest rate trends, changes in tax law and the general economic climate.
Sell it yourself or use a broker
You can sell your business yourself, but many owners contract with a professional business broker to handle the job. In addition to the training and awareness of relevant legal, tax and accounting considerations, a good reason to use a broker is to protect your anonymity and confidentiality.
If you are advertising your business for sale and showing it to prospects, it compromises your ability to continue leading the firm. A broker can front for you, screening prospects and keeping the identity of the business owner secret from all but qualified buyers.
Mergers and acquisitions
Most business buyers are individuals like you who want to become small business owners. But sometimes you can transfer ownership of a business to another business in a merger or acquisition.
As a rule, businesses have deeper pockets and borrowing power than individuals, and they may be willing to pay more than individuals.
Businesses also tend to be more savvy buyers than individuals, increasing the chances your business will survive, albeit perhaps as a division or subsidiary of another company. However, businesses cannot move as fast as individuals. It may take you a year or more to get your company ready to be merged or acquired. You will need to:
- Clean up the balance sheet.
- Drop poorly performing products.
- Terminate insider deals, such as property the company is renting from you or family members.
- Trim excessive fringe benefits.
- Make sure you’re paid up on all taxes.
- Have at least two years’ worth of audited financial statements.
Finding the best candidate
The best candidate for a merger is a company that sees yours as a strategic fit with their own firm. If you have something they want and can’t find elsewhere, such as a unique product or distribution channel, they may be willing to pay a premium price. A competitor who only wants to put you out of business is usually a poor merger prospect, however. This buyer is motivated only by price and probably isn’t interested in preserving the business.
Sometimes, the best thing to do is simply sell your inventory and fixtures, pay your creditors and employees, close your doors and walk away. Closing may be the best option if your business is failing, isn’t valuable enough for anyone to want to acquire it, or is the type of business that is unlikely to be valuable without you personally operating it (a law office is a good example of this).
If you can’t raise enough money by disposing of your assets to pay everyone off, you can give them what you have and promise to pay them the rest later on. You can usually avoid legal wrangles if the debts are small enough. Variations on this theme include making formal or informal arrangements to pay off your creditors, filing for voluntary liquidation and declaring bankruptcy. Only bankruptcy is intended to give you a second chance. The others are almost certain to result in the end of your business.
Finding the value
Value, like beauty, is in the eye of the beholder. There are probably as many ways to define value as there are businesses. The basic definition is how much money the business could be expected to sell for on the open market. But that’s dependent on what a hypothetical buyer is looking for, how the business has positioned itself, and exactly who is doing the valuing.
In this sense, value does not necessarily equal net profits or even break-even performance. Cash flow is usually more important than profits are when valuing small businesses.
An entrepreneur may chalk up a trip to Cape Town for a meeting as a business cost or keep a spouse or child on the company payroll when a publicly held company would not. To accurately assess the value of a business, the ability to employ family members and mix business with pleasure must be accounted for.
Value may also come in other forms
Ownership of a patent, proprietary process or trade secret may, by promising exceptional future cash flow, increase the value of a business. Companies that dominate a market, no matter how small, are often sought out for purchase at premium prices by other firms that, for one reason or another, want to add that niche to their existing businesses. There are different kinds of value for different kinds of people.
Can you count physical location as a component of value?
Many businesses count their physical location as a primary component of value. That’s especially true in the case of restaurants and other retail businesses and, again, is not necessarily connected to cash flow or profit. Some retailers make a practice of buying businesses only for their locations rather than how much or what they sell, or who they sell it to, figuring that a high-traffic spot will eventually prove a winner for some business combination.
The business itself may not be doing well, but if the business got good terms and conditions on its lease, and is in an excellent location, sometimes they can switch what they sell there.
Location plays a role
Location may also play a starring role in value if a company is located in a resort community that has a lifestyle that’s attractive to would-be business owners. Other businesses, such as bed and breakfasts and bookstores, may have higher values because they appear glamorous or simply interesting to potential buyers.
The intangible known as goodwill is another key consideration in a business’s value. Goodwill may range from a long-established distribution network to a sterling market reputation. And sometimes a buyer will pay top dollar to obtain a business with great goodwill.
Cash flow statement
Experts agree that if you want to boost your business’s value, pay close attention to the bottom line of your cash flow statement. That’s because most of the time, the value of your business is simply a multiple of the cash flow it generates.The term asset is the value of any tangible property and property rights owned by a company less any reserves set aside for depreciation. Assets don’t reflect any appreciation in value unless they are sold for the greater value.
Profits aren’t the only way to measure a company’s success. You should also be aware of how much your company is worth. One way to do this is to examine your company’s most updated balance sheet. That figure at the bottom for net worth, representing assets minus liabilities, is a good indicator of whether you’ve built value in your business – and if you have, how much.
Don’t stop your valuation check-up with your balance sheet, though. There are a few other ways to measure value. One of the most important valuation techniques is based on expected future cash flow, or how much cash your company should be able to throw off for you or another owner in the next several years.
Businesses are typically valued as a multiple of their future cash flows, but different industries and types and sizes of businesses use a variety of indicators. To find out what rule applies to your industry, check with your trade association.
Selling your own business or entering into a joint venture with another company can be a complicated and emotional procedure.
Never enter into a deal without good advice. Legal, financial, tax and other considerations will arise throughout the selling process and decisions should not be made without the advice of experienced professionals.
Get your financials in order
Make sure that the financials are audited before presenting them to the buyer. You should have the past three years of financial statements and tax returns available for the buyer to peruse. Take care of any outstanding issues with the SARS or lenders, as these could diminish the trust of the buyer. Make sure that your financial documents are up-to-date and as accurate as possible.
Do not attempt to sell the business yourself
Consider hiring a business broker who specialises in the industry to complete the deal on your behalf. Valuing your business is an arduous yet necessary task when you decide to sell. Valuation, financial statements, preparation of the business for sale, negotiating various details, and closing the deal are all crucial components to a successful sale of your business. Each phase requires a different set of skills and experience that a qualified business broker can provide.
Don’t tell everyone about your plans
Keep the sale of your business quiet to prevent issues arising such as negative attitudes from employees, customers and suppliers.
The biggest challenge a seller has to face is the fact that they have to negotiate sensible terms so that the seller isn’t faced with disastrous consequences. Generally, sellers are far too trusting of buyers who promise a large cheque. The seller may expect to be paid in one transaction but may not understand that payment is deferred and, even perhaps, conditional on future profits or other conditions which are usually not within the control of the seller. This is why a lawyer, who is skilled in this area, will be able to point out potential problems.
Where is the best place to advertise a business that is for sale?
The best option is to consult with a business broker. The broker will act on behalf of you, the seller, as well as the buyer of a business. A broker can estimate the value of the business and advertise the sale without disclosing the businesses identity. They will handle potential buyer interviews before involving you.
Referrals are a good way to find a suitable broker
Choose a reputable brokerage to represent you. Your accountant or lawyer will be able to recommend a good firm that is located in your area.
Working with a broker when selling your business
Business brokers act on behalf of the seller of a business as well as the buyer of a business. A broker should estimate the value of the business and advertise the sale without disclosing the businesses identity. They must handle potential buyer interviews before involving the seller and negotiate with prospective buyers. They should help with legalities and facilitate the due diligence investigation. A business broker should ideally have a business degree.
Choosing a business broker
- Choosing the broker is difficult and there are questions that you need to ask:
- How experienced are they?
- Do they specialise in a certain kind of business?
- Can they provide references?
- Can they carry out due diligence
- What fees do they charge?
- How many deals have they dealt with?
- What are their qualifications?
- Are they members of any business associations
- Who to contact
Contact the Association of Business Brokers of South Africa. They will be able to suggest a brokerage you can contact in your area.
For more information
Free Contract Of Employment Template Download
Download your free payslip and contract of employment here to get you started in the right direction.
In your downloads you will find the following resources below:
- A standard contract of employment (template) that complies with all the relevant laws.
The permanent contract of employment should be read carefully and changes should be made in line with the offer of employment and the company policies and procedures.
When employing staff you should ensure the contract is legal and legally binding. Customise this contract of employment to suit your business and what you can offer your employees.
Please note the template provided is for a permanent placement.
What steps do I need to take to start manufacturing toilet paper?
This comprehensive guide takes you through everything you need to know to start a toilet paper business.
The business of producing toilet paper has been recognised as one of the fastest developing assembling commercial initiatives in Africa.
Toilet paper is used in our homes, work places, schools, hotels, restaurants, shops, maternity homes, hospitals, churches, clubs and many others. It can be used in various other ways such as cleaning up messes and decoration.
The difference between toilet paper and other tissues is that it is created to breakdown in septic tanks and other tissues don’t necessarily do this.
To start and run a business, it is not enough just to have a good, viable idea. You also need to have the right skills, attitude and personality to make the enterprise succeed.
Benefits of starting a toilet paper production business
- It has a simple production procedures
- There are not many product offerings or varieties
- Simple organisational involved
- High interest on the product
- Easy to market
- Product is a primary necessity in society.
Possible challenges of starting a toilet paper production business
- The biggest constraint will be the insufficient amount of planted trees. This will affect you as this is where you will harvest your raw materials from. This can result in a reduction of plantation productivity. According to the Paper Manufacturers Association of South Africa 60% of all plantation trees are planted and grown especially for pulp and paper production.
- You will need to apply for water permits to meet the terms of the regulatory framework managing water usage. This is a long and difficult process and can limit you from achieving profitable operations.
- Transport, labour and licence costs will have a negative impact on your ability to competitively trade. You will need to apply cost control measures to remain competitive.
Did you know?
- In an average public bathroom, it takes 71 separate visits to finish a single roll of toilet paper.
Financing your venture
It’s most likely that you will need finance when setting up a toilet roll production business. The toilet roll production equipment is available in South Africa and ranges for a single machine from R175 000 for the bottom end of the range model to R500 000 for a fully automated machine.
Manufacturing plants are also very large in size which means financing it will be quite expensive. You should use your capital to purchase the equipment you’ll need.
Try and save money by buying economical but high quality equipment. Once you have all your equipment find a premise that will accommodate all of it. Once that is completed then contact stores and potential clients.
You can save money by renting or buying an inexpensive lot for your toilet paper business. You could even start in a smaller building and when you have increased your funds, upgrade your facilities into a bigger space. Make sure to take all of the costs into account when trying to finance your toilet paper business.
You’ll have to include raw material required to make the rolls. These are supplied in jumbo tissue rolls and cost from R6 600 per ton. You will also have to take into account staff.
Zhauns, a supplier of business opportunity machinery supports BEE by offering a variety of empowering programs for street vendors, unemployed and disadvantaged groups through consortiums, local and international joint ventures and has financial links which assist entrepreneurs in need of funding.
A start-up would need two-five people operate a small business of this kind. It takes about three months to set up the business and to properly train staff to operate machinery”. Zhauns offer free training when they install equipment purchased through them.
Planning is always your starting point when starting a new business. There are several techniques you can use for your planning process. You can use ready and existing techniques and plans or you can use innovative techniques which will make your toilet paper business more unique.
Focus on the specifics of what you will need for your toilet paper business such as equipment, employees, property and raw materials. Making errors during the planning phase is normal. After your plan is finalised it should be flexible enough that you can add changes.
In this industry you are not just competing with local manufacturers. When you become a toilet paper business owner you have to figure out how you’re going to compete with different international manufacturers.
Speak to owners of similar businesses
The best source of information you can find about an area of business, is other toilet paper business owners. They will tell you in practical terms whether your ideas are feasible or not.
To locate similar businesses which can give you advice on any aspect of their toilet paper business, contact your local Chamber of Commerce. Shereen Crowie of Curviro Trading says: “It’s a commodity with no age restriction and no seasonal production demands.”
For support and guidance
If you are going to be a toilet paper business owner you need to have business skills, even more so than technical skills about your product or service. This means you have to understand finance.
You need to know how much your idea is going to cost you, whether it will make enough money to pay back these costs and make enough in addition to satisfy your requirements.
The DTI (Department of Trade and Industry) recognises that support in the form of advice from specialist organisations is vital and the offer support groups to SME businesses.
One such arm is Khula Enterprise Finance which is a wholesale finance institution that has well-developed ties in the public and private sectors.
Through these channels – which include commercial banks, retail financial institutions, specialist funds and joint ventures they play an effective role in order to bridge finance gaps that are not addressed by commercial financial institutions in the small business sector.
Did you know?
- People use on average 8.6 sheets per trip, which is a total of 57 sheets per day. That’s an annual total of 20,805 sheets.
It is recommended to get training when joining the toilet paper business industry. There are many essential practical skills which you will need when starting a toilet paper business.
There are courses offered by universities which will help improve your skills and understanding of the technology involved. You can alternatively get training from current experts in this field.
You can apply for internships at factories and get first-hand experience. If this is your plan of action make sure to take very detailed notes about all the process involved.
Draw up a business plan
Business plans are essential for businesses from when they start out to years later when your businesses has evolved and improved.
It becomes a guide for you and your employees to track whether your business has gone off course from the core of quality production. Experts can be hired to help you draw up a toilet paper business plan for a fee.
Business plans can be used to organise everything from your marketing strategy to the strengths and weaknesses of your business.
We recommend: Business Plan Examples to Get You Going
It will help your toilet paper business keep clear objectives as well as making your priorities recognisable. Milestones recorded in your toilet paper business plan will help you follow your progress.
Choose a good location in an industrial area for your toilet paper business. It’s recommended that you get a realtor, since they are the experts in their field.
They will advise you on which buildings are better for your toilet paper business and which ones would be unsuitable.
Make enough time to view each property before purchasing or renting it. Your toilet paper business can’t be in a residential area.
Types of Machinery
You will need to buy or rent the necessary equipment with the finances you have. Some of the machinery that you need to get going with your toilet paper business is:
- Core making cutting machine – This produces the brown cardboard core that the tissue is wrapped around.
- Jumbo reel winding machine– This winds the tissue paper from the jumbo reels to the cardboard core. It will automatically stop at a programmed size.
- Embossment attachments or embossing machines – Embossments are the prints on the surface of the tissue and the tissue roll can either be plain or embossed.
- Band saw cutting machine – this cuts the paper into the right side.
- Other machinery requirements:
- Generator for power outages
- Auxiliary equipment
- Transportation – its optional but can be essential.
This type of business will require trained employees. It would be a definite advantage if you hired experienced operators or people experienced in similar industries.
This will allow you to hit the ground running instead of slowly training your staff from scratch.
Hiring inexperienced people can also cause a decline in the quality of your production as well as a decline in the level of your toilet paper businesses productivity.
Once production has started you will need to come up with various ways of distributing your product.
Since your brand is new, you will most likely have to do a demanding marketing drive so that customers know who you are.
Customers won’t buy your brand if they don’t know who you are. Advertising consultants can help your toilet paper business with effective strategies which will help increase sales.
Which works better buying machinery first or getting orders before buying equipment?
Look at your market before spending the money. It is good business practice to establish if there is a market for your product before buying expensive equipment. For this reason, it is vital to do research and to prepare a business plan.
Renting manufacturing equipment for this purpose may be a solution. Once the toilet paper business is up and running you can then consider buying your own machines.
Buying outright can result in a huge drain on cash in the first year of your toilet paper business.
Did you know?
- In South Africa a family of four uses approximately one toilet roll every 1.5 days
Example of innovative thinking
Chandaria Industries operates out of Kenya and Tanzania. They sell their products in 15 African countries.
What sets them apart from their competitors is they make their recycled toilet paper from used paper.
What innovative thinking does for them, their communities and their country:
- They are making money from recycling
- They are transforming waste into a necessity
- They are now a source of national wealth
- They provide employment for many thousands of people
Just the used paper recycling activities creates nearly 20 000 jobs. By doing this they have saved over 30 million trees since they started in 1964. They still have more room to grow, saying that they don’t get as much used paper as they need.
Toilet paper will always be a necessity in people’s lives. Where your toilet paper business can grow to:
- Custom toilet paper – creating toilet paper with personalised images or custom images
- Various sizes – You could expand your toilet paper business into various other toilet paper sizes and thicknesses
- Various tissue paper opportunities – You can expand your business into the tissue paper manufacturing business
Paper Manufacturers Association of South Africa (Pamsa) executive director, Jane Molony says that the pulp and paper industry’s is continuing to grow and make profits because of their energy-saving initiatives.
Molony also says that the value of the pulp and paper industry (excluding forests and recycling) in 2014 was around R27.8 billion.
Tissue paper achieved a yearly turnover of R2.5 billion in 2014 which is a yearly growth of 2.7% since 2009.
This industry has large growth potential and is a great business opportunity. Toilet paper has become a basic need all across the world. It can’t be recycled so there is always need for more.
Every single person on the planet uses it on a daily basis. Why shouldn’t you be the one making it and selling it to them?
Related: Free SWOT Analysis Template
How do I register as a sole proprietor and what should I know about running a sole proprietorship?
Understanding sole proprietorship.
A sole proprietorship is a business owned and operated by one individual.
This form of business where one person owns all the assets of the business means that if the business fails, any of your assets, including your personal assets, can be seized to pay for all the liabilities owing.
- This type of business enterprise has one owner
- Many small businesses operate as sole proprietorships
- Businesses that require minimum amounts of capital often operate this way.
No, it is not necessary to register as a sole proprietor.
Because there is no division between the owner and the business, the owner will generally be responsible, in civil and criminal law, for actions conducted in the course of the business.
Registering with SARS
The sole proprietorship itself is not separately taxed on its income. Instead, the sole proprietor reports business income and expenses on his or her own tax return.
Renting staff and renting premises
A sole proprietor can employ staff and still be the sole owner.
What makes a SP differ from a CC pr private company is the owner is personally responsible for debts incurred by the business. Loans taken out for this type of business are taken out in the owner’s name.
That means that the owner stands to lose everything, including his private estate if the business fails.
What are the pros and cons of operating as a Sole Proprietor?
- Simple to form
- No formalities required
- The sole Proprietor’s own assets which are unrelated to the business are subject to claims of business creditors.
- A sole proprietorship gives the least protection because the personal liability of the sole proprietor.
- The proprietor carries the full risk of failure and this can result in sequestration (a process where the assets of the debtor are taken by a trustee to be distributed between creditors) of his or her personal estate.
- Perpetual existence is not possible. If the owner dies the proprietorship comes to an end.
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