How to Sell Your Business: Are you thinking of selling your business?
Knowing how to sell your business can help when you decide. You’ll make sense of everything involved and take the proper steps to avoid complications.
This step-by-step guide can help you ensure selling your business progresses smoothly.
1. Ensure Selling Your Business Is The Right Decision
Quitting a business you’ve worked on for some time can be a difficult decision. Ensure your choice to sell the enterprise is the right one.
You may ask yourself these questions to ensure the decision is the right one:
- What are your expectations from the sale?
- Is your business ready for sale?
- Are you prepared for the sale?
- How will you cope if you sell the business?
- What happens if the sale doesn’t go through?
- Are you ready to step away from your business?
Answering these questions can help you know if you are deciding correctly. You’ll also answer the buyer’s questions quickly. For example, the buyer might be curious to know why you are selling your business. Answering these questions can also prepare you for the next steps. You’ll take them easily if selling is the right move.
2. Decide Whether You’ll Use Professionals
It may be difficult to avoid using some experts, such as accountants and lawyers. You’ll need their input to ensure the process proceeds smoothly and you have all the essential documents.
You may have more leeway with using a business broker. You may partner with a business broker if your financial situation and resources allow you to work with one.
Selling the business yourself may be challenging, but it is possible. This option helps you avoid paying business broker commissions. However, be ready to invest your energy and time into the process. You’ll also have to be available to handle prospects’ inquiries. Organising your affairs can smoothen the sales process.
Working with a business broker may be more beneficial. You’ll pay the business broker a commission. However, they’ll represent you throughout the sales process and help you get the best price. The right business broker has experience in selling businesses and knows the industry.
Related: Business Brokers – What Are They And How Do I Get The Best Out Of Them?
The team of business brokers from Xcllusive Business Sales
3. Decide What Is For Sale
Knowing the specific things you are selling can help you value your enterprise. Ask yourself:
- Do you wish to sell the business with all its assets?
- Which assets aren’t you ready to sell?
- Will you sell your registered company name?
- Will you sell the business’ IP (intellectual property)?Will you include any property the business owns?
- Answering these questions can help you decide the things you’ll sell.
4. Prepare The Business For Sale
Preparing your business for the sales process can ensure everything progresses smoothly. Buyers prefer buying organised enterprises.
Gather the essential business documents and ensure they are up-to-date. You may compile:
« Financial records: They include bank loans, profit and loss statements, an outgoing costs breakdown, a balance sheet, and forecast financials.
« Commercial information: It includes registration papers (for ABN and other permits), supplier accounts, asset details, and insurance information.
« Operation documents: They include supplier information, business history, inventory lists, rosters, marketing materials, and process documents.
« Legal details: They include franchise agreements, customer and staff contracts, health and safety guidelines, and leases.
« Forecasting documents: They include intellectual property documents, revenue growth projections, and market surveys. These documents show investors that buying your business is a good move. All these documents can help prospects see your business as worth it and less risky acquisition.
5. Value Your Business
Determining your business’ worth can help you ascertain the right price to sell it.
The conventional techniques for business valuation include:
- Look at the current market value for enterprises in your sector
- Use your ROI (return on investment)
- Assess your business’ goodwill and assets
- Estimate future profits
- Work out the cost of establishing your enterprise from scratch
You can evaluate your enterprise’s worth yourself or through independent professionals. You’ll use the documents prepared in step four for this process. Buyers may reevaluate the enterprise’s value. Having your figure ensures they won’t undervalue it to pay less for it.
It helps to consider the price from the buyers’ point of view. You’ll know whether the amount is fair. A fair amount can help you find buyers quickly.
Check out this comprehensive presentation by Xcllusive’s Zoran Sarabaca on how to value your business and plan your future exit:
6. Find A Buyer For The Business
Advertise the business to potential buyers in these ways:
« Real estate agents or business brokers
« Traditional and digital media
« Word of mouth
« Your network (e.g. employees, family, and friends)
« Former and current clients of the business
The right avenues depend on your business industry, type, and contacts.
It may take 6–9 months to sell the business in Australia. You may get a lower amount if you rush the process. Supply prospects will all the relevant information they need to decide if buying your business is worth it. Be ready for their due diligence before they commit to buying your business.
7. Negotiate The Sale
Once you find a buyer, you’ll negotiate various things. Ensure the information you provide about your enterprise is true and accurate. Any untrue statements may be misleading. They can land you in legal trouble or stop the sale after weeks of discussions.
Agree with the buyer on essential issues, such as:
- Arrangements for current staff
- Sale price
- Payment terms (e.g. deposit amount, payment period)
- Handover training for the buyer
- Non-compete clauses
Knowing the costs involved when selling your business can help you reach a favourable agreement. Some expenses to consider include:
- Legal costs: You pay these fees for the services offered by a solicitor.
- Valuers fees: You pay these amounts to individuals or entities involved in evaluating the enterprise’s worth.
- Lease transfer charges: You may incur reassignment fees if you transfer equipment, plant, or property
- leases during the sale process.
- Penalties for early loan repayments: Ask your lenders if you’ll pay any penalties if you repay your loans early.
- Payable accounts: Payables incurred by the enterprise daily and are unpaid when selling your business
- must be settled by you or your business.
- Tax liabilities: Settle any tax obligations you have before selling the business or work out how the company will pay them. Workers’ entitlements: Establish how you’ll settle unpaid workers’ entitlements, such as extended service leave and unpaid leave. You may also work out how the company will pay them after the sales process. You’ll be ready if you know these fees. There won’t be hidden charges that may have affected the sales price.
8. Prepare The Sale Contract
An intermediary can draft the sales contract. Follow the relevant state or territory laws during contract preparation. You may ask a solicitor to check the contract’s validity and terms before signing it.
The solicitor will ensure:
- The relevant assets are transferred
- The contract has sections on creditors, liabilities, and leases
- The transfer is comprehensive on how current employees and workers’ entitlements will be handled
- The contract details what happens if any party withdraws from the agreement before it is complete
- The contract addresses other potential issues, such as mistakes in the contract and competing clauses
Scrutinise the contract before signing it. This approach can help you avoid problems, such as civil proceedings against you.
9. Manage Your Employees
Inform your employees of the transition and address their concerns. Tell them if they’ll work under the new owner or leave the business. You’ll have no obligations to them if you address all their issues. Give them notice of ending their employment agreements with you or offer payment.
Provide the essential employment information to the new owner if the workers will continue their work in the enterprise. New owners may have to recognise some employee entitlements.
10. Finalise Your Legal And Tax Issues
Consider whether Good & Services Tax (GST) and Capital Gains Tax (CGT) apply to the sale of your enterprise. For example, you may include GST when valuing your business assets or settle GST credits if you registered your business for GST. You may have CGT concessions if your business is small.
Planning for tax obligations arising from the sale helps you meet them and avoid debt. The ATO payment plan can help you if you can’t pay the taxes on time.
Consider taking insurance policies for your business. For example, a run-off cover can protect you from legal claims made after the sales process.
11. Transfer The Business
Transfer the business after selling it to the new owner. This step may involve:
- Transferring licences, permits, and leases
- Finalising activity statements, tax returns, and instalment notices
- Cancel your ABN and cancel or transfer your business name
Licence transfers can take up to a year. Plan for this process early to avoid inconveniences. Transferring lease obligations and agreements to the new owner takes their responsibility away from you.
Do You Need Help Selling Your Business?
Xcllusive Business Sales can help you have a smooth sale. We are an Australian Business Brokerage committed to finding the best deals for people selling their businesses. Our AIBB Business Broker of the Year Award for 2020 shows our commitment to helping clients achieve their goals.