Thinking of selling your business? You’re in the right place. But there are a few things you need to know first, to ensure the value you’ve built through your hard work isn’t lost. You’ve probably already thought about a price tag, and even what your next adventure could be.
Selling up might seem as simple as finding the right buyer, who’s willing to pay the right price. But there’s bit more to it than that. We’ve put together a range of helpful tips and questions to help you avoid costly mistakes when selling your business, and make sure you and your buyer both end up satisfied.
1. Is it the right time to sell?
If you’re selling on a whim, then it’s probably best to be honest about the reasons why you’re looking at selling your business. If stress or a negative experience are part of the reason, the timing might not be the best. Potential buyers can easily pick up on any negativity, and it could affect how they perceive your business and how well it is run. It might be better to take a little more time to plan for a future sale, and aim to build up your business to the best possible value. Don’t forget to keep a good account of your efforts so you can demonstrate the improvements.
2. Have you properly promoted your business?
No one knows your business better than you do, so you’re in the best position to spruik it’s value. You might be surprised how many leads you can generate by combing through your supply or professional networks. If that’s not something you’re comfortable with, we are here to help. With a national reach and options for levels of promotion, Selling Businesses Australia can do a lot of the promotional legwork for you.
Going it alone on promotion can take more time and effort, but we’re here to help you with some tips and tricks along the way, to help you through the process.
If you’re still unsure though, engaging a business broker might be the best way for you to go to market. Make sure you have carried out your due diligence beforehand (due diligence is not just for purchasers in a business sale!). Expect to pay an initial fee to engage their services and negotiate a commission for the eventual sale, usually around 10% of the total sale. Make sure you are comfortable with who you are trusting the sale to – make sure they’re familiar with your type of business and have a proven track record for positive outcomes. Remember, you’re paying them for a service so they are working for you – you have to be comfortable with the relationship.
3. Call in the professionals
You’ll need some trusted professionals on your side not only when you’ve found the right buyer, but from the outset. Ideally a solicitor and your accountant with the skills and expertise to help guide you through the process. These professionals will be required whether you have committed to selling on your own or through a broker.
The solicitor will be integral with regard to maintaining confidentiality for both parties during the sale process. Letters of intent, non-disclosure agreements (often called NDAs) and confidentiality agreements are useful documents that your lawyer will assist with.
Once you’ve found your purchaser, drawing up and filing of your sale paperwork will fall to your solicitor and accountant. They will work with the purchaser’s representatives to finalise the sale.
4. Get your paperwork together
Make sure you have everything you need to demonstrate the value of your business to potential buyers. There’s a series of documents and information buyers will expect to see when looking for purchase.
Having them ready to go helps build confidence when a purchaser is carrying out their due diligence. As a rough guide, you will need the following documents ready to go when you list your business:
- Financial records – profit and loss statements, bank loans, forecasts and an outgoing costs breakdown
- Commercial information – supplier accounts, registration papers (ABN and other permits), asset and insurance details
- Operational documents – business history, supplier information, stock inventory lists, strategy, procedure and process documents, current rosters and marketing materials
- Legal details – staff and customer contracts, franchise agreements and/or leases (where applicable), and health and safety guidelines
- Forecasting documents – detailed plans for future business growth, anything that shows intellectual property, revenue growth – things that may make potential purchaser’s see your business as a sound investment
These documents will be covered under the previously mentioned non disclosure and confidentiality agreements (another reason to have a good team behind you!). As a general rule; the more you are able to provide, the more it reduces the level of uncertainty for the buyer. And, at the end of the day, that leads to a smoother, more efficient sale.
5. Putting a price on it
How do you put a price on the hard work and effort you have invested into your business? There are a few things you should do before you determine how to value your business.
- What are similar businesses currently priced at (you can check here<insert hyperlink to SBA website search page> and narrow the search down to your industry/business type)?
- Given the business current situation, what kind of return of investment (ROI) could you expect (your accountant can assist with this)?
- What’s the current value of your assets and goodwill (debts to be paid, future contracts yet to be honoured)
- Forecasting future profits
- Taking it back and working out how much it would be to start the business from scratch
A great accountant will be invaluable – they’ll help take the emotion out of the ultimate decision. You’re likely to have buyers who already know the market, have a price in mind they’re prepared to pay, with the right level of detail and information, so it may be wise to look at it from their perspective. If you’d be happy to pay what you’re asking when in that mindset, you might be on to a good thing.
6. And let’s go!
You’ve got everything in order, reports are ready to go, you’ve set a price you’re comfortable, written the best ad you’ve ever seen and you’re about to press go. You’ve come a long way, and not to let you down, but you might have a way to go. Businesses in Australia take on average 6-9 months to sell, so make your ad live and knuckle down to sell your business.
Now is the time to use your networks – you never know who is in the market (and let’s face it, you don’t know until you ask). Prospective buyers will have done their homework before contacting you. The sooner you can respond to their queries, the quicker the rapport builds. Use this to your advantage so you can both get to where you want to sooner
7. The fine art of negotiation
They like you, you like them- now you need to finalise everything to confirm the deal. A contract will be required to note the key points:
- Agreed sale price
- Deposit amount
- Settlement period
- Handover and training details
- Any agreed trading restrictions (non-compete clauses, if required)
- A complete list of assets and liabilities relevant to the sale
- Staff arrangements
- Other applicable details
The final contract will be drawn up once all parties are in agreement. Verbal or written offers are not legally valid until both parties sign an agreed contract. So don’t count your chickens before they hatch, be pragmatic, prudent and above all, reasonable, until you’re happy with the proposed outcome.
If you want to take a deeper dive into the fine art of negotiation, check out this post.
8. Signed, sealed, delivered. Moving forward.
So it’s the end of a chapter – you’ve sold your business. Congratulations.
Now you need to deliver on the items relevant in the final contract, assist in handing over the business to the new owners (there’s a great list from the Australian Government here to assist) and bid your farewell.
Take a moment to look back on all you achieved and move on to your next exciting adventure.
In summary, a business sale is like any other process – it’s a process. But if you’re committed, organised and prepared to dedicate the time, the future is yours.