You put a lot into your business, so when you’re ready to let it go, you want the transition to be smooth. These “selling your business checklists” – drawn from decades of experience from sales ranging from convenience stores and restaurants on the one hand to national multi-state transactions on the other – will help you get the most out of your sale.
Questions to ask yourself when considering a sale of your business
There are several things to consider when selling a business. These questions can help you focus on the most important details.
1) Why Are You Selling?
Selling your business is a big move, so be clear about your reasons. The desire to retire or change industry is a common motivation for business sales. However, if its just that you’re feeling overwhelmed or exhausted, focus on remaining sufficiently dedicated to close the sale.
2) Who Will Help You Sell?
Most people use a broker. Using a broker is less hassle because you have someone else to help with the details, handle the paperwork, explain the legalities and connect you with a network of buyers.
3) Where Will Staff Members Go?
Think about whether current employees will leave once the business is sold or continue to work under the new owner. Wait until the deal is signed and unconditional to start discussions with staff and help with transitions.
4) How Will you market the business the sale?
If you’re working with a broker, he or she will publicize the sale of your business. To advertise on your own, look into online business directories and local advertising options.
The 10 Do’s of Selling a Business
Use this “preparing a business for sale” checklist to stay on track.
1) Get the business in shape
The successful sale of a business is long in the making. Preparation should begin long before the business is put on the market. Leases and supply contracts should all be in place and all legal issues bedded down. The business structure should be tax effective vis a vis its sale. Obviously, the business must be running at its best to achieve the best price.
2) Assess the value
Most businesses are valued by reference to sustainable net profit. Your accountant or a competent business broker can assess the value. The taxation implications of the sale should also be considered at this time.
3) Gather all information
Gather your business and financial records – everything you would expect a potential buyer to want to see. Know the critical issues about the operation of your company and be ready to answer questions. Look at other businesses in the same industry for sale. What information are they making available?
4) Decide what information to publicise
Write up a concise description of the essential features of the business and its activities. The starting information that buyers look for is turnover, details of secure contracts, licensing, expenses, staff and lease terms. Find out what additional information is needed in your industry to provide a clear picture for prospective buyers. Some information you will want to keep confidential until a potential buyer has demonstrated a commitment to proceed.
5) Identify prospects
Whether you connect via a broker or on your own advertising, identify competitors who you think might be the ideal buyers for your operation. Think about what you would want to ask if you were considering buying their business.
6) Negotiate carefully
For each prospect that you all your broker identify, “feel out” the potential buyer as regards your asking price and what objections they present.
7) Maximise price
Vendor finance and “earn outs” are very effective ways of achieving a higher sale price than the buyer might originally be prepared to pay. An earn out is where The seller usually remains employed in the business and only receives the final portion of the sale price – after say 12 or 24 months – if the turnover or profit of the business meets the sales or profit target for those periods.
8) Create your Contract
An intermediary party should draw up a business sale contract with information such as the business assets, excluded items, payment terms, earn outs, due diligence, presale tuition, after sale assistance, staff handover and competition restraints. Have the contract examined by a solicitor to ensure the details reflect your intentions and what is in your best interests.
A lot happens between the signing of the contract and completion of the sale. The buyer conducts all its investigations and examines the seller’s financials to be satisfied as to the profitability of the business and all compliance and other legal issues. The seller will be required to assist the buyer in every way possible with its enquiries.
10) Transfer Ownership
The lease for your business premises must be transferred to the buyer along with any necessary licenses, permits and the business name. If all’s well, final documentation is handed over in exchange for the sale price or at least a substantial part of it. Often part of the sale price is retained pending a proving period or an earn out if applicable.
The “Five Don’ts of Selling a Business”
Sellers must avoid these common pitfalls.
1) Don’t rush into a sale
Pushing a sale before the time is right can lead to a poor sale price, hurried decisions and legal complications.
2) Don’t fall for the big talking buyer
Unqualified buyers sometimes disguise a lack of financial capacity with outlandish claims of business wealth or exotic sale structure proposals. These buyers can end up wasting a great deal of time and cause you wasted expense in having a deal that never gets off the ground.
3) Don’t forget the tax implications
Capital gains tax, income tax and GST will have to be considered during the course of negotiations.
4) Don’t skip the Legal input
A business sale is far more likely to be a success with the help of a lawyer. A skillful lawyer will add substantial value to your transaction and will help you avoid costly mistakes.
5) Remember to “let go”
When a sale is complete, the business is out of your hands. Trying to linger and micro-manage the transition creates unnecessary and unwanted tension.