When the time comes to sell your business, how will you go about it? Will you sell privately or via a broker? Or instead of selling, will you dispose your assets and close? The following information outlines your different options to help you make the best decision for your situation.
It is always best to get professional advice before you decide to sell or close.
I Want to Sell My Business
People decide to sell for a number of reasons:
- They don't want to run their business anymore
- They want to retire
- They want to start a new venture
- They want to make money
In order for your business to be saleable. It must:
- Be profitable - do you have at least three years of attractive tax returns to demonstrate your track record?
- Have opportunities for further growth - can you prove that demand for your products and services will continue? ie. contracts or customer agreements / forward orders
- Have an acceptable level of market competition - demonstrate that your business is not about to be eroded by competitors
- Demonstrate excellent systems, team (if part of the sale) and cost minimisation measures
It can take 18 months to two years to prepare your business for sale and then you need to choose the right time to sell. Click here to read an Archer Gowland blog article on "Growing My Business to Sell" and here for a checklist to see "How Ready am I to Sell My business?" for more information.
Do I Sell My Business Privately or Should I Use a Broker?
When you decide to sell you can sell privately or use a broker.
If you sell privately you can advertise in the paper or online, or approach potential parties directly (ie. staff, competitors, suppliers, complementary businesses or investors). You will need to have your business affairs in order (including your financials and business valuation - your Archer Gowland accountant will help you with this) and have a confidentiality agreement and letter of intent from your lawyer at the ready.
You will need to vet your potential buyers to weed out "tyre kickers". There will be plenty of people keen to see behind the curtain and these will waste your time. Pre-qualify your buyers by asking them:
- How long have you been looking for a business?
- What type of business are you looking for?
- What experience do you have in my industry?
- Will you be directly involved in the business?
- Where are you at with finance?
- What is your timeframe for finding a business and making a decision?
Ask potential buyers to meet you on site to save you time and ensure they sign your confidentiality agreement and letter of intent before any sensitive information is disclosed.
As the negotiations progress, it is wise to get your solicitor to draft a binding sales contract. You will need to be very clear about what is included in the sale and how long you will be held responsible for previous agreements and business dealings.
Should I Use a Broker to Sell My Business?
If you use a broker, you can expect to pay seven to 10 percent brokerage fee on the sale, however if you shop around and find a good broker who has your best interests at heart, you will benefit from their:
- Ability to negotiate the best deal (without emotions getting in the way)
- Ability to expedite the transaction as smoothly as possible
What Paperwork Do I Need to Sell My Business?
Whether you sell privately or via a broker you will need to have in place:
- Your price and business valuation
- Confidentiality agreement and letter of intent
- Marketing document including the potential of your business
- Relevant legal, financial and operational information including -
Financials: Tax returns (3 years), bank statements (3 years), balance sheets (3 years), accounts receivable / payable lists, owners salary, financial forecasts, stock inventory and cost price, valuation of equipment and fixtures.
Legal: Building leases, licenses, patents / trademarks, employee agreements and records of employment, franchise agreements, business registration (ABN), contracts / agreements, insurance policies, current loans / agreements. If it is a freehold sale, the land title and any agreements.
Business: Marketing plans, business procedures, employee manuals, training manuals, vendor and customer database, equipment servicing receipts, website details and statistics.
I Want to Close My Business
You may choose to close your business and walk away. Business owners close for many reasons including:
- The business not being viable to sell ie. sustained financial losses
- The business no longer being competitive or offering desirable products or services
- The business owner not wanting the hassle of a sale or having their business in the hands of others
- The business has fulfilled its purpose
- Moving into retirement
If this option appeals to you, you will need to consider:
- Your closing date
- Making provision and plans for your employees
- Notifying suppliers and customers
- Ending lease agreements
- Selling assets
- Bringing debts up to date
- Finalising tax and legal matters
- Tidying up loose ends
You will also need to carefully store certain business records, some for up to eight years.Your accountant will advise the best methods of doing this.
More Information on Selling Your Business
For more information on selling or closing your business, please contact Ian Walker from Archer Gowland on 07 3002 2699.
You may also be interested in the Archer Gowland FREE publication (below) "Building a Saleable SME" which outlines the process involved for growing, preparing and selling your business. Click on the image to access your PDF copy instantly.
PS. Sign up to receive the Archer Gowland Blog, regular accounting updates for business owners. Click here: http://blog.archergowland.com.au/.