The Need to Knows of Selling a Business
Whether a desire to investigate new business ventures, retirement plans or a shift in personal circumstances, the choice to sell a business is a big project that needs to be carefully planned, executed, and strategically envisioned. The prospect of selling a business is undeniably thrilling, yet it carries profound implications for both the owner and the business itself. As a result, we’ve designed this blog to examine these issues and provide guidance to help you understand the concept of selling.
Thinking of Selling?
Prior to placing a price on your business, it is vital to reflect on what you are really want and what your ultimate goals are in selling or valuing the business. Some key questions to ask yourself are:
- Why do I want to sell?
- Will I lose money by selling?
- Is it a good time to sell?
- what are my plans for after I sell?
- How can I prep my business for sale?
- Will selling negatively impact me?
- Will this sale impact anyone else?
Use of Professionals
Whether it is the financial or contractual element of the sale, the use of professional is always highly recommended.
An accountant may help with accurately assessing the value and financial health of the business. They can help manage due diligence and prepare financial statements that may be necessary in selling a business.
A business broker connects sellers and eligible purchasers, streamlining the transaction process and guaranteeing efficiency in the sale process.
A solicitor may help by handling all legal aspects of the transaction, including the drafting, and reviewing of the contract, ensuring compliance with the terms, and safeguarding the interest of both the seller and the purchaser.
You may also sell your business on your own if that’s what you wish to do. Although this decision may be advantageous, it is also not a straightforward path and encounters many negatives. The table below shows a comparison of using professionals versus independently selling the business.
| Selling the Business Independently: | Selling the Business with a professional: |
| Pros: Maximise profits; Direct control over the sales process; Closer involvement in negotiations with the buyer; and Retaining confidentiality and discretion. Cons: Significant time commitment; Limited market reach to potential buyers; andGreater legal and financial risks. | Pros: Expertise in securing favourable deals; Access to a network of potential purchasers; and Less stress in relation to the sales process. Cons: Incurs commission and upfront fees; Less direct control over sales process; and Dependant on professionals’ performance and network. |
Legal and Tax Obligations
Regardless of whether you chose to do the selling of the business independently or professionally, it is a requirement to get your legal and tax assessments completed prior to the sale. This task is better done by professionals as they can provide you with accurate results in a timely manner, in comparison to if it was individually completed. Buyers will want to view 3 years’ worth of financial statements including the balance sheets of the business equipment’s, property and inventory against debts owed, cash flow statements and a profit and loss statement that demonstrates much money is made and spent over time.
Valuing your Business
When getting ready to sell, valuing your company is essential since the right price will draw in possible purchasers. It is doubtful that a sale will take place if the value of your company is substantially overvalued. Similarly, you will lose money if you set your price too cheap for your business, hence the importance of accurately valuing your business. Some methods of valuing your business are as follows:
- Analysing the market – comparing your business to similar ones that have recently sold, providing a guide to potential market price.
- Business net worth – assessing its assets and liabilities, including tangible and intangible assets.
- Return on investment – determine the value of the business based on net profit, to which allows for the financial performance to be measured.
Although all the abovementioned methods are utilised when valuing your business, the final transaction price often depends on negotiation factors such as seller motivation, buyer strategic interests, and the available financing.
Finding Buyers
Finding the right buyer is crucial and may be done so through the following methods:
- existing relationships;
- networking;
- word of mouth;
- utilising broker services to connect with potential buyers through publications or databases; and
- real estate agents.
Employees
Informing your staff about this impending change is crucial. They can be asked to continue working for the business or let go, either way you must give them notice of their employment ceasing with you or provide them with payment in lieu of notice.
Negotiation
To avoid any impression of deceit, accurate and honest information are crucial when negotiating the sale of your business. The following criteria must be agreed upon by the buyer:
- the sale price;
- deposit often 10% of the sale price;
- settlement duration;
- handover training; and
- plans for current employees.
The following are crucial components in the negotiation process:
- transparency when addressing due diligence concerns;
- open communication; and
- adaptability and clarity on the conditions of sale.
To guarantee the transaction’s compliance, legality, and financial sustainability, legal and financial expert advice is recommended.
Contract of Sale
The contract of sale is often drafted by an intermediary on your behalf. It is also recommended that a solicitor reviews this agreement on your behalf as they can attest to the fact that the contract includes information which is truthful and covers every facet of the deal, such as:
- relevant assets being transferred;
- relevant liabilities;
- responsibilities for the employees and their entitlements; and
- statements about what will happen if any issues arise.
Transferring business to the new owner
Transferring ownership to the new vendor involves several crucial stages. These include:
- cancelling your Australian Business Number (ABN);
- transferring or cancelling your business name;
- concluding tax reports; and
- transferring leases, licenses, and permits.
Be mindful that until any lease agreements and duties are formally transferred over, you are still accountable for them and since licence transfers might take up to a year, advance planning is essential.
Again, professional advice is highly recommended to help you through this process.
