Whether you decide to “go it alone” or hire a professional broker to sell your business, you should know the key twelve points to getting your business sold before you start!

Set a Realistic Price for Your Business

One of the key factors in getting your business sold is to position it where the buyer sees value and you are happy that are also happy to sell.

The best guide to future sales is past sales and a thorough understanding of the current market.

Generally, prices are based on one of four methods;

Asset Value plus one year’s earnings
The Current PEBITDA (Owner’s earnings/cashflow approximately) with an industry and size multiple applied.
Return on investment to one working owner.
The discounted future sustainable earnings.

Think about how your current stock plays into these values, as these values are generally plus stock.

Write an interesting advert and publish it broadly.

Owner’s often write an advert to give as much information as possible. The result is that few people enquire as they already know enough to move forward or not move forward, but they then forget….

Adverts should give enough information to get a buyer to enquire as they are generally interested but not enough that they can make a decision without enquiring, as if you don’t know who they are the you are not going to follow up.

Use stock photos as actual business photos tend to look unprofessional. You may also find it identifies your business when no NDA is in place and you may have buyers turning up and talking to staff, who may not know the business is for sale.

When selling you are looking for one buyer, however it is unlikely you will only need one enquiry or one enquiry source. There are many business sales sites in Australia and to ensure you find your buyer you need to cover all of them. This is 9 sites. If you “save” by not been on one you may never be seen by your ideal buyer.

Create a file of important documents

The lines are cast across all the top business and franchise for sale websites in Australia. The bait is set, your business profile is ready and will be sent out to all qualified enquiries, but when a fish bites we must be ready to strike and catch the BIG one right?

Many years experience dealing with business and franchise buyers has taught us that how quickly you respond to their requests for information can have the biggest impact on the success of your sale. The quality and speed of your response to potential buyers will either give them confidence in the business they are considering or it can make them lose interest altogether.

Now at some point, your buyer will want to see certain documents either before making an offer, or after in the due diligence period. Either way, you MUST be ready and have the most requested documents on hand and ready to email out.

Collect these documents, scan and have ready as many of the following items as possible so when that fish comes to bite you are ready to strike!

After all, there is no sadder fisherman’s tale than “The one that got away ”

4 – Create a Summary Overview of Your Business

Now you have all of this documentation together you will need to consolidate it into a business summary that you can send to interested buyers after they have signed a non-disclosure agreement. This should contain enough information on the business for the buyer to decide if he wants to invest further time, without giving away your secret sauce recipe.

5 – Prepare an NDA for Every Buyer to Complete.

Before you send out your business summary, make sure each buyer has completed an NDA that your lawyer has prepared for you and that you have this on file in case a dispute arises.

6 – Managing the Buyer Meeting

In the business sales process, your buyer will have looked for businesses online and found yours at some point. They will then have requested information, signed a confidentiality agreement, received and reviewed your Business Profile and after follow-up, asked some initial questions that you have been able to answer.

Having checked that a) they are serious b) have a plan on how they will finance the deal, they will want to come and view the business.

This is where the real sale happens and you are the best informed person on your business to do this. Plan your meeting by setting an agenda and having all of your files ready to share.

7 – Appoint Your Professionals

This applies to your accountant and the solicitor you will need to use to prepare and finalise your sales contract.

Accountants

Generally, as a business owner you will have an established accountant you currently deal with. If not, then you have to be prepared to provide all of the requested financial information yourself.

Just remember when speaking to an accountant that:

1) They may discourage you from selling as they know this means they will lose that business. Explain to them why you are selling and why they need to support you in this.

2) Accountants are often not experts in selling businesses. Keep them on task. If they believe your buyer doesn’t need to see certain things that Bonza have advised, remember we have sold hundreds of businesses and know what the buyer needs.

3) They charge you on an hourly basis so be very concise in what you ask them to do and if possible get a costing upfront.

4) They may offer you price advice. Although this may be comforting, it usually costs money and often has little relevance to what the market is prepared to pay.

If you are engaging with an accountant or solicitor for the first time, the first meeting should be to discuss how they can best assist you and the costs for their services. This initial discussion should be free of charge.

Solicitors

You should consider when it is best for you to actively engage with a solicitor. This may be after you have a signed written offer, or prior, if you would like advice on the written offer itself.

If you are confident with your ability to document your sale yourself, you can use a free online contract, however, we recommend using a legal firm to ensure there are no hiccups. Brief the solicitor upfront and be prepared to provide them with information about your business and the sale. This should save time down the line. Generally, for smaller businesses, a solicitor will use a standard REI contract amended to reflect the specific circumstances of your business. This helps keep costs down. We would expect the cost for a good solicitor to prepare your contract to be around $3,000 to $6,000 depending on your business size and complexity.

If you are confident with your ability to document your sale yourself, you can use a free online contract, however, we recommend using a legal firm to ensure there are no hiccups.

Business Broker

If you decide to use the services of a business sales specialist, then check the following points with them.

Where do they advertise and what will they charge you for advertising over a 12 month period?

It is worth paying to have great advertising coverage, but check you are actually getting this before committing.

Do they charge for preparing your business profile/ IM?
What is their minimum fee on completion? We see some brokers charging a minimum of $15,000, others as much as $30,000. At Bonza we charge a minimum of $1,500. With this type of variance in the market it is worth checking the minimum even if you think you may be well above this. After all you are selling to get money in your pocket, not your brokers.
What completion fee do they charge?

The market rates vary vastly, with Bonza offering the most competitive rate, a 3% completion fee and competitors generally between 8% and 10%. On a $500,000 business this can make a massive $25,000 difference in your net returns. Do you want to buy yourself a boat or your broker a boat?

8 – General Deal Conditions

Once you have got this far then you will need to create a term-sheet with your buyer. A term sheet is an initial agreement that is generally non-binding but establishes the ground rules and parameters of a deal and helps the solicitors when it comes to drafting a contract.
It should contain price, inclusions, due diligence period, handover terms and a host of other items. An extensive Terms Sheet list is available for you online.

9 – Preparing for Due Diligence

Due diligence is really the “audit” of your business related to the sale thereof.

In this time the buyer (and their accountant and solicitors) will have the opportunity to check that the information you have provided about the business so far is accurate, that it operates as you have indicated and that there are no hidden issues that you have not disclosed, which may influence the performance and hence the value of the business moving forward.

What documents will you need to provide?
This will vary depending on your business but think of this as a full business audit with financials, lease, contracts, customers lists etc. as a minimum. You can get an extensive Due Diligence list by following this link.

As well as providing documents the buyer is likely to want to observe the business in operation. This can be as short as half a day or as a long as two weeks, depending if they are trying to verify cash taking or not.

As training is conducted after settlement (ie all funds are paid) then try to limit the time to due diligence rather than training.

Refrain from providing forward looking profit and loss, cash-flow or sales projections as these are the most likely to come back and bite you in future.

Negotiating the Deal

Once you have found a buyer and received an offer you will need to evaluate this offer and decide how to respond.

If it is a low ball offer your initial response may be to reject it out right, or even not reply at all.

Remember every offer is a good offer and may need to be negotiated upwards until both parties are happy with it.

Non-monetary factors can also play a role, such as the target deal date, handover/training time, the buyers background and how they plan to pay you.

Having a third party in the mix can help take the emotion out of the deal and result in both parties getting a workable result. If you do decide to go it alone, you may want to download the full negotiation guide from our website.

You may also get an offer that is subject to vendor financing….

11 – Vendor Finance Explained

We are seeing an increased number of business sales where Vendor Financing plays a role. This is partially due to the fact that banks are not financing business purchases often and hence the buyers are looking at alternate ways to leverage into businesses.
With vendor financing we recommend limiting this to a maximum period.
of 24 months after transaction and taking payment on a regular basis. The amount financed should be payable from the cash-flow of the business, while leaving the new owner enough to make a good wage.

E.g. if the purchase price is $300k and the business is making $150k return to the owner, then we would recommend taking at least 2/3rds as an upfront payment with $100,000 as a deferred payment, payable over 24 months, either in monthly (preferred ) or quarterly instalments. The $100,000 vendor finance means that $50k per annum is repaid, which is available out of the $1050k cash flow without stressing the new owner. This amount should be viewed as “at risk” and the total value of the business may then be more than for a cash payment to compensate for this.

Preferably there is some sort of security provided, assets of the business or receivables of the business or a second mortgage over a home to ensure this is not defaulted on. Most importantly the contract should be drawn up by a reputable legal company to ensure that the debt collection can be enforced through the courts if required.

12 – Keep selling until you are sold.

We often speak to business owners who believe they have a buyer in hand and therefore do not want to market their business. Six months later they are back looking to sell urgently as this transaction did not occur.

So when should you stop marketing your business?

Think about the following situations first;

1) I have a handshake deal with a buyer.

2) I have a letter of intent with a buyer

3) I have a buyer who says he is ready to buy in 3 months time

4) I have a friend who says they are interested.

which of these is going to lead to your business actually selling?

Potentially all of them. Most likely none of them.

The only surety you have around the completion of a deal is when there is a written and signed contract and a deposit has been paid. Until that point you should actively encourage new enquiries and keep talking to potential buyers.

Deals can fall over until the point of an unconditional contract and the final payment is received.

Having a second or third interested party can help keep the buyer honest and on a defined time track at an agreed price.

As you know if there is someone else wanting to buy something it always makes it more interesting and easier to sell.

So keep marketing until your contract is unconditional!

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The 12 Must Read Steps to Getting Your Business Sold before You Speak to a Business Broker!