How to Prepare for a Business Sale in Singapore
To prepare a small business sale in Singapore, there are a few key steps to approach business valuation and the sale process as objectively as possible.
Step 1: Understand Key Valuation Terms
One of the key terms you should know is EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization—essentially, it is the net profit of a business.
Now that you are aware of EBITDA, the other important term to know is SDE, which is an acronym for Seller’s Discretionary Earnings. SDE is used to determine the true value of a business for a potential new owner, where you will add in the current owner’s salary or assumed a sum that they would earn in the current market environment.
Generally speaking, small business owners use SDE whereas large businesses use EBITDA calculations to value their businesses.
Step 2: Prepare Financial Documents
Before you start the process of valuing your business either by yourself or through the professional services of a business valuation specialist, it is critical that you first prepare your business’ financial documents.
These are some of the financial documents that you will need to have in order:
- Last 3 to 5 years financial statements (Balance Sheet and Profit and Loss)
- Current year financial statements to date
- Annual tax returns for the past 3 to 5 years
Step 3: Make a Detailed Report of Your Business Assets and Liabilities
Essentially business assets include anything that adds value to your business. It can either be tangible or intangible.
Examples of tangible assets:
- Real estate or property
- Equipment or means of production
- Inventory or stock
- Cash on hand
Examples of intangible assets:
- Patents, copyrights, and trademarks
- Customer subscriber base
- Brand and reputation
Liabilities include any debt or outstanding credit on your business’ books, and they subtract the overall value of a business. Liabilities can include:
- Accounts payable
- Business loans
- Accrued expenses
Step 4: Research Your Industry
Familiarity with your industry is crucial for both buyers and sellers. Before buyers can confidently make an offer on a business, they’ll need to become well-versed (if not an expert) on that business’s industry. On the sell side, a deep understanding of your industry’s trends can help you reach an informed valuation that reflects your business assets as well as the current market.
As we mentioned earlier, a business’s SDE multiple—and the method of valuation—varies according to a few factors, including the strength of the industry. So, sellers should find out as much as they can about companies that are similar in size, business model, and revenue, if that information is available.
Sales of a comparable business within the same industry will provide good insights and a benchmark as to how much you can sell your business for. It will also help you to assess your market share and growth potential, which you can utilise that information to demonstrate to potential buyers what makes your business stand out.
Step 5: Seek the Help of a Business Valuer
Once you have gathered all of the necessary financial documents and made a detailed report of your business assets and liabilities, it is time to seek the help of a business valuer. Business valuers have the expertise and knowledge to assess your business’ worth objectively, taking into account all of the factors that affect the value of your business.
Business valuers can also provide you with a comprehensive valuation report, which includes an analysis of the current market conditions and trends, the strengths and weaknesses of your business, and an assessment of its potential for future growth.
By working with a business valuer, you can ensure that your business is valued accurately and that you receive a fair price for it.
Step 6: Create a Marketing Plan
Once you have received your valuation report, it is time to create a marketing plan to advertise your business for sale. This is where you will need to identify potential buyers and determine the best way to reach out to them.
There are a few different methods that you can use to market your business for sale, including:
Business brokers Online business sale platforms Social media Industry associations Personal networks
By using a combination of these methods, you can increase the visibility of your business and attract more potential buyers.
Step 7: Negotiate the Sale
Once you have identified potential buyers and received offers for your business, it is time to negotiate the sale. This is where having a good understanding of your business’ value and the current market conditions is crucial.
When negotiating the sale of your business, it is important to be flexible and open-minded. While you may have a specific price in mind, it is important to remember that the ultimate goal is to sell your business at a fair price that reflects its true value.
Conclusion
Selling a business is a complex process that requires careful planning and preparation. By following the steps outlined in this article, you can ensure that you are well-prepared for the business sale process and that you receive a fair price for your business.
Remember to seek the help of a business valuer, as they can provide you with an objective assessment of your business’ worth and ensure that you receive a fair price for it. With the right preparation and guidance, you can successfully sell your business and move on to your next venture.
Knowing when to do a business valuation is also crucial, read here to find out more..
Contact us for a free initial consultation on how to prepare your business sale in Singapore and to perform a business valuation.
