Selling your business is a big decision, because it will have a big impact on your finances and your family’s future.
There are many reasons why you will want to take plenty of time preparing for the event – not least the need to secure the best price for all those long hours and years of hard work.
Unfortunately, as with many other things in life, business owners can’t always bank on having enough time to set their own business-exit agenda.
So here’s a checklist of some issues you should consider right now.
Why gamble on an important asset?
There are many business and personal circumstances which can precipitate the hurried, and thus potentially disastrous, sale of a business – death, divorce, poor health and a sudden relocation being just a few.
That’s why the smart time to start preparing to sell your business is today. If that seems premature then we’re not talking about putting it on the market just yet.
Preparing your business for a potential sale before the need to move on becomes urgent not only means you are better placed to choose the timing and manner of your departure; it’s also the best way to maximise returns on your investment when you do finally sell up.
And preparing to sell involves doing some things – tidying up accounts and records, tightening business processes, replacing old equipment – that are worth doing whether you want to sell or not.
Do you know what your business is worth?
Naturally, agreeing a deal to sell will centre on the price the business can fetch.
Business brokers use several different business valuation methods. Among the most common are valuations based on an industry-based ratio; sale prices for comparable businesses in the same sector; and the total value of your commercial assets.
A transparent valuation – where you can clearly show prospective buyers how you arrived at the sale price – will always show your venture in the best light.
Family-owned businesses that have become accustomed to routing ‘personal extras’ through the company should be aware that multiple tax write-offs can drive down profits. This can lead to a serious undervaluation of your business.
Are your financial records in order?
Your business accounts and associated records should be accurate and up to date. Any potential buyer will expect to see trading accounts going back a number of years.
If your records are not in order, this will dissuade most interested buyers from pursuing an acquisition.
What will happen to your employees?
It’s wise to keep any prospective sale secret from most employees until the deal is done, lest information leak out to competitors or customers.
You may, however, wish to inform key staff in the lead up to sale to gauge their intentions and incentivise them to stay on under new management. They may even wish to buy out the business themselves.
If key staff are happy to stay on, a potential purchaser would see this as an advantage, making your business easier to sell and able to command a higher price.
Prevent an exodus by reassuring staff that the new owner is legally bound to honour the terms and conditions of their existing employment contracts. You should take professional advice regarding any broader entitlements required under employment law that could influence any prospective sale.
Have you thought through legal obligations and tax implications?
You should also consider other legal and tax implications of selling up and moving on.
The buyer may require the seller not to operate a similar business for a certain period after the sale is completed, for example.
Ten percent GST may apply to the sale contingent on how the deal is structured, while the capital gains tax levied depends on the sale price and for how long you have held the business.
You should also check whether any specific state or territory regulations apply. In Victoria, for example, a potential purchaser must receive a vendor statement containing business financial data for any enterprise put up for sale with a marker value below $350,000.
How do you find buyers?
Your business-for-sale advert should give enough information to pique interest in potential buyers but not so much information – like the business name or address – that employees, clients and competitors will notice. Blowing your cover can have serious consequences: employees may leave, competitors may take advantage and seize your clients or major customers may suddenly lose confidence and cancel orders or contracts.
Employing a business broker or real-estate agent is a sensible strategy in most instances (although some sellers choose not to do so), and their advice will certainly help to ensure the proposed transaction is handled with due discretion without detriment to future business prospects.
Where appropriate, it may be best to mine your industry networks, consult your own senior staff (as mentioned earlier) and advertise in trade publications and – of course! – on BusinessesforSale.com to attract suitable buyers.
Though a sale may only be on the distant horizon, it’s worth reflecting on the words of US-based business strategist Debbie Allen, who believes many people fail to recognise the optimum moment to sell: “You want to sell when you are at the top of your game – peaked out. Some will say: ‘I'm making good money now. Why should I sell?’
That's thinking like a business owner, not an entrepreneur.