1 – So its time to sell
Time for change
The reasons for selling your business are many; retirement, change in your private or business circumstances, change of lifestyle, rationalising your portfolio or its just time to sell.
Understand the process of selling your business. Prepare all documentation. Research the current market.
Your accountant, solicitor, business adviser or financial planner can help a great deal with all of this. Now is the time to get as much advice as possible. Remember this is a financial transaction. As invested as you are in the business. People buy on returns, not on your emotional attachment.
Engaging into an informative conversation with a business agent can give you a very good idea of what price you can get for your business and how the process works. Most agents will provide free business appraisals. The business agents’ price is based on your trading history, status, market tolerance at time of sale and what they have seen like businesses sell for in current times.
It is not uncommon for the opinions of your advisors and business agent to disagree.
Don’t get discouraged by this, get everybody to clearly explain to you how they arrived to their price and why. The better informed you are, the better decision you are likely to make.
Now is the time to seek financial, legal and commercial advice. Emotional issues need to be dealt with prior to putting your business on the market. Failing to do so can cost you time as well as money.
Costs involved in selling the business don’t stop at fees and charges for advertising and professional services. Selling can be a huge distraction to you, while it is this exact time you should be concentrating on the day to day business needs.
Staff can be a real factor at this stage. Losing members of your business will make both the sale and ongoing trading very difficult. Staff will often feel uneasy when a business goes up for sale. Will they have a future role, should they look elsewhere, will the new owners value them as you have?
With all of this in mind, it is imperative you find the balance of maximising sale exposure, but keeping it as confidential as possible
A good business agent can do this for you.
2 – Choosing a Business Broker
Or why do I need one at all?
There are many business brokers offering services. All will have great features, references and will be the only ones who can sell your business. So, who do I choose?
Does the agent you are speaking to have expertise in your profession. Asking a broker who specialises in cafes will probably not bring you the results you are looking for if you are selling a manufacturing firm. Engaging the wrong agent could mean loss of time and money.
You need to select an agent or a broker that won’t just list your business and run the ads and then send the potential buyer to you to deal with them. The whole process becomes a partnership between the seller, agent, buyers and other business advisors to the seller
You need an agent who will help you prepare the business and yourself, who will lead you and assist you in all steps of the process, who can locate the buyers and closely cooperate with you in order to achieve the best results.
- How are they going to help you prepare yourself and your business for sale?
- What is their process during marketing, buyer’s introduction, due diligence, and negotiation?
- How are they going to locate the buyers?
- Are they available for after hours meetings if necessary?
Be aware of long exclusive contracts. I am still yet to be given a great reason for any seller to enter an exclusive contract that is valuable to anyone but the agent.
Some of the reasons I’ve heard
“We will give it our utmost attention and will be driven to sell”
So, what were you going to do before? Just ignore me.
“We are the only ones who can sell it in a timely manner”
Then you will have no problem with an open contract. You will sell it before anyone else anyway.
“I can put you in touch with existing buyers straight away”
So, you either have them or you don’t. Do you really want to sell my business?
Locking yourself into a long exclusive contract with the wrong agent can create a lot of trouble and account for a lot of lost time and opportunity.
I’ll sell it myself
This is an option and one I’ve seen many times. Usually put on social media or one of the selling sites such as Gumtree. This will create calls.
Consider that out of 100 enquiries taken, around 5-10 are what we consider real enquiries. You will get a lot of calls from your competitors wanting your trading figures. People who have had a bad day at work and start to look at business sales, then realise that employed work is not that bad after all. People who just randomly pick businesses they may be interested in but are really only wasting time.
Yes. You will receive calls from business brokers asking to represent you.
Once you have found the ones who are genuine, you will then need to engage legal from both sides, organise deposits into trust funds, do all negotiations that come at this stage (agreeing on the price is only the beginning) and coping with landlords and advising the buyer how to become a suitable candidate.
All this needs to be done while you are still running your business. Besides the time taken and the organisation that needs to be done. You will need to be in a position you can accept money into trust. No buyer will give you a deposit without it being secured.
The fees and charges
Some agents charge up front fees, for listing and marketing fees. Some don’t.
Choice is the ideal solution. Ask what you receive for what you purchase.
Some listings require in depth information memorandums that can take up to 2 weeks to compile. Large complex businesses are well benefited to this approach. Don’t sell your self short by opting for cheap.
On the other side if you are selling a smaller business with minimal stock and records. Don’t pay large amounts for something that can get you the result from a one-page informational document
Don’t decide based on cost alone. Like any good business decision. Evaluate what’s on offer and sign what’s right for you.
3 – Preparation for Sale
The more you prepare. The faster it proceeds. Do it early.
What is your expectation of return? Have you discussed this with your broker?
Have you agreed on advertised price?
What is your minimum acceptable price and terms?
What you will do if you can’t reach your minimum acceptable terms of sale or what is your alternative to sale of the business?
Do you have time frames for sale?
All books and records need to be brought up to date, and ready for potential buyers’ inspection. Current lease documents and a complete asset list should be all completed and available.
You may be asked for BAS statements to show reportable revenue. Are these up to date and lodged. If your equipment is leased, are you going to pay this out on sale or will the new buyer be expected to take them over.
What are you going to do with the name of the business and any online presence you may have? This can be a huge sticking point for a lot of sellers. Buyers want to take them over as it shows a continuity of service and not scare the clients. Some sellers get emotional about the name.
Frankly if you’re not Apple or McDonalds. Its not worth losing a sale over because you named it after your first pet and feel attached. But your intentions need to be made clear. Telling the buyer, they can’t have what they thought they were buying after the offer is made, leads to great frustration for everyone.
A Sales Memorandum needs to be prepared outlining everything needed for a potential buyer to assess the business. The following information is to be included:
- Brief description of the business and it’s history
- Description of customers and markets
- Description of products, services and pricing
- Business suppliers
- Description of premises and lease terms
- Financial highlights for at least 3 years
- Employees and wages explanation
- Assets owned by the business that are for sale with the business
- Strengths of business
- Potential for future expansion
- Reasons for sale
- Asking price
In addition to preparing your business for sale, you need to prepare yourself.
4 – Marketing
Everything is agreed. Now what?
You feel you have the right team in place. Everyone is comfortable with the range. Excitement is at peak levels. So how do we find buyers.
- The brokers website
- Make known to brokers network for their potential buyers
- Contact existing buyers in database to offer opportunity
- Place content on Australia’s business for sale websites
- Identify potential companies that would benefit taking over your business
- Take advantage of social networks. Video marketing. Mail campaigns
- Cold Calling
5 – Buyers Enquiries
Sorting and managing is the key
Enquiries will come in from all your marketing efforts and many different sources.
As stated above. Not all will be genuine enquiries.
It is imperative that all enquiries sign a confidentiality agreement before any information is given.
Calls are made to the buyer to investigate
- Experience in industry
- Funding availability
- Expectations from business
- Time frames of purchase
- Answering or recording of questions the buyer may have
The buyer will want to meet the owner and inspect the premise. Again, it is vital that it is made clear no meeting or inspection can take place without the agent arranging with the owner
This is to protect the owner. The last thing anyone wants is for a buyer to turn up unannounced in the middle of your working day, asking for the owners’ time, right now and announcing to all, that they are there to buy the business.
Initial meetings with the owner can be arranged outside business premises or outside working hours.
The key to all of these enquiries is communicating the feedback given. Regardless of the time spent to achieve the correct position. Adjustments will need to be made for market uptake.
- Is anyone seeking more information or just casually looking
- Are we aiming at the right markets?
- Is the pricing truly reflecting the current market
This needs to be discussed regularly between agent and seller, so adjustments can be made. This may include price, benefits or even taking it off the market.
7 – Offers
Everyone wants a bargain
All offers will be communicated to the vendors. This is a requirement the broker must adhere to. Remember this is your business and you decide on what offer is right for you.
The offer will include, but not exclusive to
- Name of the buyer and the date
- Purchase price
- Time frame for the settlement
- Required owners assistance during the changeover, time and nature of their involvement
- Competing trading restrictions for the owners
- Exclusion from purchase, if any
- Conditions the offer is subject to
8 – Negotiation
The art of the deal
The offer may be accepted on first pass, it may not meet the reserved price.
The important thing is not to close communication. Understand each sides position and work towards a solution. At this point you all have a common goal, It just requires working together to make this happen.
Its most important to bring all details out now. Things like
- Will the owner stay with business. For what period?
- Will there be a trial period given?
- Transfer of existing name web sites and social media
- Landlords agreement if applicable
- Inclusion and exclusion of assets
- Existing third-party contracts
Accepting the buyer’s offer does not mean that the business is sold. Often a security deposit is taken, but this is fully refundable until an exchange of contracts is completed.
The buyer can withdraw their offer at any time, also the seller can still accept offers from other parties.
Once the offer is accepted, solicitors from both parties are informed and sales contracts need to be commenced.
9 – Due Diligence
Any business or potential business owner will not exchange large amounts of money without inspection.
It is in your best interest to have all of these documents ready. They are vital to the smooth transfer of business and to protect you in any future dealings.
Be open and 100% transparent. The list will include but not inclusive of
- Contracts for sale of the business
- Financial records
- P&L for last three years
- Bank statements
- Tax returns
- Proof of past sales
- Proof of past purchasing
- Current balance sheet
- Employment contracts and remuneration amounts Insurance policies
- Pending quotations
- Customer database
- Any Up front payments received Supplier contracts
- Joint venture and partnership agreements
- Trademark registration
- Stock levels
- Asset registry
- Customer contracts Property Leases
- Lease and rental agreements for any equipment and assets
- Software licenses
10 – Exchange
The deal is done
Exchange is the term used to signify that both solicitors have agreed to all terms and conditions of contract, documents are signed by both parties and the contracts have been given to both sides
Without agreement from both sides, there is no withdrawing from the contract.
The buyer can no longer seek a refund if a deposit has been paid nor withdraw the offer. The seller can longer accept offers from any other interested buyers nor withdraw the sale.
11 – Settlement
Pick a day. Any day
Today is the day. Agreed dates were put into the contracts and here we are.
This can be done at a mutually agreed venue. It can be done at the business site, solicitors office, agents office or at a restaurant if desired.
Payment is given to the vendor less deposit paid (if applicable). The deposit is released from the trust account. The agents commission and any other fees are deducted from the deposit, or are now due.
Once settled the business and all assets are transferred to the buyer,
From this time the buyer is now responsible for
- Profit and Loss
- Employee hiring
- Lease of premise
- Rental or leasing agreements
- Intellectual property
- Business names and reporting
Step 12 – Change over
Let me help you
In agreement during negotiation stage. The old owner may be engaged for a handover period.
This may be for information exchange, as a contractor to the business, manager of the business or CEO. I have seen instances of the previous owner becoming an employee to the new owners.