Selling your business is a major decision and will impact not just many aspects of your life, but also what you get back for the hard work you’ve put into your business over the years.
Whatever your reasons are for selling – whether you want to retire, make a profit on a good investment, you want to pass it on to a family member or the business isn’t doing too well and you want to get out – it’s important to have a clear exit strategy. Following a planned exit will help you get the best possible price for your business and prevent any further complications further down the track.
Once you’ve decided to sell your business there are three stages that you’ll go through before the sale is complete; Preparing your business for sale, setting the price, and making the sale.
Preparing Your Business For Sale
Step back from the business – It will be far easier for someone to take over from you if you have set up policies and procedures the employees can follow. This removes buyer’s fears that the business may fall apart when you leave, and allows them to be as involved or silent in the running of the business as they’d like.
Business relationships – Document your businesses’ key relationships including things like supplier contracts and agreements. Try to convert any verbal agreements into written agreements. This will make your business look stronger to prospective buyers.
Clean House – Go over your business to make sure it makes a good first impression for a buyer, just as you would if you were selling a house. Take inventory of all stock or equipment, sell any redundant equipment, clean up the main premises, and review existing leases to ensure they don’t expire during the sale.
Business financials – make sure all your financial records are up to date, including your debtors, creditors, profit reports and financial statements.
Buyer’s Information Pack – all this information should be included in a Buyer’s Information Pack. This will give prospective buyers a clear indication of what they’ll be getting for the purchase price. For an idea of what a buyer will be looking for check our page on buying a business.
Setting The Price For Your Business
Naturally you want to sell your business for as much as you can without pricing yourself out of the market. You should be rewarded for the hard work you’ve put in over the years. There are four main things you should consider when determining the price for your business.
Return on Investment (ROI) – when someone purchases your business they will want to see a return on their investment, so what you’re asking for needs to reflect the profit your business makes annually. Basically it’s a matter of how many years before they get that money back from the business.
Asset value – the goods and equipment you have in your inventory will also help to determine a price for your business. These will include tangible assets like work tools and equipment or stock, and intangible assets like the brand name, reputation and good employee relations.
Market value – finding the market value is done by multiplying the turnover of your business by an industry multiple. This is not the best method for valuing a business but should be factored into your price as purchasers will be considering the market value when they negotiate a price.
Starting from scratch – you should also consider what it would cost to start your business from scratch. Think about equipment, employees, marketing and how long it would take to establish your client relationships and reputation.
Selling Your Business
There are four main steps in selling your business from this point. Keep in mind that you may have to go through some of these points more than once as you deal with a number of prospective buyers.
Marketing – whether you sell through a business broker or manage the sale yourself, there are a number of areas beyond business sale listings you could approach potentially interested parties. Consider your competitors, friends, industry professionals and even employees that may want to take over the business.
Qualifiying potential buyers – not all interested parties will be genuine buyers. Competitors and suppliers may be trying to gauge market changes in your industry, while those with little money or business management experience will just be wasting time you could be spending with prospective buyers.
Negotiation – once a buyer has seen the business, financial statements, inventory etc. they might want to negotiate the price and even some of the terms of the sale before they make an offer. Decide in advance how low you’re willing to go and when you will walk away from the table. You don’t have to sell to the first interested party.
Finalise the sale – even if you haven’t engaged a lawyer previously in the sale process, this is when it’s important to have a lawyer on your side. A commercial lawyer will draft a business sale contract that includes the details you discussed with your buyer, the price, and protect you from any further liability.
Adams Wilson Business Lawyers
If you’re planning on selling your business talk to the team at Adams Wilson Lawyers. We can help you with the whole process to ensure you’re getting what you deserve and draft a contract that protects your interest. Talk to one of our skilled commercial lawyers to discuss what you want from your sale.
Please call 1300 253 203 or send an enquiry using the form to the right. You can also read our article on Buying a Business.