How to Sell a Business in Kenya: A Step-by-Step Guide
The business environment in Kenya is on the rise and you may want to consider selling your business. Whether it is due to retirement plans, desire to pursue other interests or just to reap the rewards of years of hard work, it is still such a major decision to sell off any Business in Kenya. The selling process is not just tendering your keys after finding a suitable buyer, instead getting the most fair price for all those years put forth in such a business.
Introduction to How to Sell a Business in Kenya
In this article, we will outline the step-by-step process of doing business sale and purchase in Kenya. We will explain everything starting from how to prepare for the sale of all or part of a business to the disposition of all documents and completion of the deal afterwards. So, if you are now ready to move forward further in this extraordinary adventure, let’s begin!
How to Sell a Business in Kenya
1. Preparing For Selling Your Business In Kenya
Before you hang out that ‘For Sale’ sign on the window, there is a little preparatory work to be done. It is like giving your business some “face-lift” that will be more appealing to the prospective buyers.
First things first let’s discuss money. You don’t want to have any blemish in terms of how your financial records are. This means keeping your balance sheets, income and expenditure reports and KRA returns up to date. If not, you may seek for an accountant to handle that and optimize your financial presentation.
Then assess the operating procedures of your business. Is it possible for the business to run without you being there? If the answer is no, then it is time to implement some efficiencies in your processes. You should write down your procedures starting from external processes like suppliers and internal spheres like employee’s duties. The idea is to market the notion that the business to be sold is running smoothly even without the owner’s daily management.
Do not overlook the fareweather hand too. Every licenses and contracts your business holds has to be current. For those debts that still exist, such needs to be settled now. It is common knowledge that no buyer would want to purchase a business that has litigation problems.
Finally, have a business appraiser evaluate the existing business. This type of appraisal will allow to know the real value of the business at that very moment in time. It’s like having your house appraised before selling it – you want to find out the actual worth so that you do not leave any money behind.
2. Valuing Your Business
Now, let’s dig deeper into the valuation process. There are several ways to determine what your business is worth:
- Asset-Based Valuation: This method looks at what your business owns. It’s great if you have a lot of valuable equipment or property.
- Earnings-Based Valuation: Here, we focus on how much money your business makes. We look at things like your EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This method works well for businesses that are turning a steady profit.
- Market Comparison: This involves looking at what similar businesses in Kenya have sold for recently. It’s like checking the prices of houses in your neighborhood before setting your own asking price.
As you may have heard a few times already, and will hear a few more, an appreciation of a business is not always dry economics. Determinants that are not easily quantifiable, like the hotness of an economy like Kenya in general or market for that specific business are also considerable tolls. I bet businesses in a volatile industry would probably sell for lesser value when there are adverse economic conditions.
Be realistic and bear in mind that this is not the only decision that you will face. Do you have capacity for additional growth? Want to launch some new lines of business? These may enhance the marketability for your business.
If all this sounds a bit overwhelming, don’t worry. Some experts can help. Consider hiring a business broker or valuation expert. They can provide an objective valuation and help you present your business in the best possible light.
3. Finding the Right Buyer
Having evaluated what your business is worth, it’s time to locate a suitable potential buyer for it. However, not all of them – you want the right buyer. Let us analyze who you have:
- Strategic Buyers: These are mostly corporations in the same industry as yours that want to grow. They may be more generous in payment terms if your business offers a good strategic fit to theirs.
- Financial Buyers: Some include investors or private equity funds. These people are all about numbers and what can be achieved.
- Individual Buyers: These could either be people who want to be their own bosses and therefore looking for a business to purchase. They may also be attracted by the famous business culture.
So, how do you get your hands to these buyers? There are several ways to go about:
- Post your business for sale on sale websites even in Kenya like Business For Sale Kenya website and on the world’s website www.bizbuysell.com. But, sensitive information will not hold some exposure.
- Use your business contacts. Who knows? A supplier or an industry contact might have or be interested in a similar venture.
- Think about hiring a business broker based in Kenya as they understand the market. They will help you to stalk and screen prospective buyers.
Related to vetting is the effort of marketing – it is essential to identify the clients. Here you do not want to entertain prospects who are just ‘looking’ or even buyers who cannot afford your business. Request for funds or a letter of intent; this will also help you in differentiating serious buyers from the frivolous buyers.
4. Negotiating the Sale
Alright, you’ve found a potential buyer. Now comes the negotiation dance. Here’s how to stay on your toes:
First, know what you want. Set a minimum price you’ll accept and think about your preferred payment terms. How quickly do you want to close the deal? Also, consider non-financial aspects. Maybe you want to ensure your employees are taken care of, or your company’s reputation stays intact.
Try to understand what the buyer wants too. Are they after your customer base? Your brand reputation? Knowing this can help you structure a deal that works for both of you.
Be ready to justify your asking price. Have your financial data, market trends, and growth opportunities at your fingertips.
There are different ways to structure the deal:
- Sell the whole business outright
- Keep a small stake for yourself
- Offer to finance part of the sale if the buyer’s a bit short on cash
Remember, negotiation is a give-and-take process. Be prepared for counteroffers, but know your limits. Stay flexible, but don’t sell yourself short.
5. Navigating the Legal Process
Having struck a deal, well it’s all down to signing the paper. Here’s what you need to understand:
First up is the sales agreement. This document should cover everything – price, payment terms, what is being sold and any terms. This is something that should be worked on with a lawyer so that all the legal requirements in Kenya are met.
Next comes due diligence. The buyer will want to peek inside your business. Be prepared to provide accounting, legal and organizational data. Keep a lid on everything, and if the matter is not in the public domain, don’t make it so.
Depending on how large of your business is, it may be necessary to obtain permission from Kenyan governmental bodies such as the Competition Authority of Kenya. Always ensure that all your licenses and permits are valid and transferable to the new owner.
Finally, this is the last phase where you execute the transaction. This is done by transferring the ownership, signing of all legal documents and acquiring the full payment. Don’t forget about the handover process – a new owner will need orientation that comes when plenty of things have to be shown.
6. Post-Sale Considerations
Congratulations! You have sold your business. But still, there are a couple of things which one must consider:
You might be asked to remain with the new owner for a few weeks or months to facilitate the transition that may have been agreed before.
You might need to be prepared for not starting operations in the same business that you have just sold for some time. Such is the case if you are required to sign for a non-competition clause, or clause of any nature restricting certain actions. This is to safeguard the new owner’s money.
We should however keep in mind the tax consequences of the sale. You are most probably going to incur a capital gains tax. You would speak with a tax authority in the country of Kenya to avoid any breaks on their tax laws.
Consider what the proceeds from the sale are meant for. Perhaps you want to retire and offload some of your burdens, you would like to take a shot in the sub, or you want to put it into another economy.
And finally, last but not the least, selling a business is always filled with emotions especially for people who have built it all from scratch. Feeling happy and sad at the same time is quite understandable. Plan your next step, which can either be lying freely on some sandy beach or taking into something new.
Conclusion
Closing a business sale process in Kenya takes time and is very complex. The process includes preparing the business and dealing with the emotional issues of selling a business. The important thing is to get ready , look for assistance if and when necessary and be quite and calm throughout the process.
Always remember that to minimize the risks, a strategically undertaken sale may help you prepare for the next phase and new opportunities in your life. So do not rush, do all that is required to be done and here’s to hoping you get the best sale possible and begin another journey in your life.