There are many reasons why owners may need to sell their businesses as soon as possible. It is often reasons like financial hardship, relocation, market changes, poor health, retirement or even accepting an offer of employment.
If you have found yourself in a position of needing to sell your business urgently then the following information will make understanding the business sales process easier and explain where to focus your attention first.
There is a definite benefit to outsourcing a reputable accountant, solicitor or business broker like Bonza Business and Franchise Sales to help you sell your business. Business brokers undertake the sales process daily. They can help you understand legal and government requirements, offer advice about the profitability of your business, and provide market trends for your industry. They can make the process of selling your business less stressful, more efficient and in some cases, better value than doing it by yourself. You may also wish to talk to family members and friends for more personal advice on your decision.
Make sure you have a good understanding on exactly what to include in the sale of your business. Are you only interested is selling part of it, or all of it. Selling a percentage of the business is a real option should you be open to it. It reduces the overall investment cost/perceived risk for a buyer and allows you to keep doing what you want. If you own the building, are selling the freehold with it or just the businesses? Typically selling the freehold with the business does tend to complicate the sale process and price a lot of buyers out of the market that could have purchased your business if it were accompanied with a lease.
Establishing what is for sale will help you to effectively value the business and price it fairly.
If the business is not profitable and you are really in a hurry to sell your business, then selling the business’s assets first could be an option to consider. Assets are something that any business could absorb, and it won’t require them to take over control of your business’s name either.
Ask yourself:
-Do you want to sell the business outright including all the assets?
-Which assets don’t you want to sell?
-Do you want to sell your registered business name?
-Are you looking to sell the intellectual property (IP)?
-Do you want to include any property the business might own?
Valuing your business is about working out how much your business is worth so you can set the right price when selling.
There are several ways to price your business for sale. The most common methods are:
-Return of investment (ROI) – use your business’ net profit to work out the value of your business.
-Calculate the business’s net worth – compare the difference between what your business owns (assets) and what your business owes (liabilities). You need to consider both tangible assets (such as machinery, buildings, and land) and intangible assets (such as goodwill, brand recognition and intellectual property).
-Evaluating your market – compare your business to similar businesses on the market or that have recently been sold. While this is not a formal valuation, it does provide a guide to your possible market price.
A proper appraisal and a fair listing price matters when a quick sale is the goal. One way to tell that a business may be over-priced is on how many inquiries it receives on any marketing. It is not uncommon for a business to sit on the market for an extended period if it is over-priced.
One of the more time-consuming phases of the business sale process is due diligence. This is the step where the prospective buyer examines your business to ensure they understand it comprehensively. They will often want to investigate your financials and other legal paperwork.
You may be asked to provide a wide range of documents, including profit and loss statements, balance sheets, lease agreements, income statements and contracts with staff/suppliers/clients etc. Compiling all these documents ready to be handed over to a potential buyer certainly speeds up the process down the track.
After considering the above steps, the first thing that business owners want to know is how long the process is going to take. Although people would take great comfort in knowing this upfront, the truth is there is no simple answer to this question because there are many variables involved. The main aim is finding a buyer, which can be done quite quickly or take time depending on how the market is at that moment.
Most business brokers in the industry agree that it takes on average, between 6 and 9 months to sell a business. According to AllBusiness.com, a series of business brokers were surveyed by BusinessesForSale.com and the results were staggering. Their information showed that 28% of all brokers have indicated it takes 6 months or less from start to finish. At the same time, 31% brokers indicated it takes 9 months while 21% of all brokers say it takes 12 months, there was only 10.5% of brokers that said over 12 months was required to achieve a business sale.
We understand that this is not the information to want to read when time if of the essence but there are ways that you could fast track the process yourself and put your business in the best position to sell.
Sell the business internally – This would be the ideal situation as an employee would likely have a fantastic understanding of the business, its potential and see benefit in taking ownership for themselves.
Sell to one of your contacts/competitors – If you have been in business for a while then you probably know a lot of businesses that are in the same industry to yours. They may want to purchase for financial reasons or for strategic reasons, to expand their own business operation or to shut yours down so that it does not threaten their business any longer. All you must do is contact them and let them know that you are selling. They may be willing to make you an offer right away.
Widespread and professional marketing – Simply put, the more buyers your marketing reaches, the faster and more likely your buyer will be found. There are thousands of buyers out there in the marketplace, however once you filter through those to your specific industry, then to your geographical area the buyer pool obviously becomes smaller. Therefore, capturing each potential sales enquiry becomes critical. These days almost all buyers simply use search engines like google to find businesses for sale just like they do real estate. Google then puts them onto the biggest business for sale websites. Seekbusiness and Commercial Real Estate Business Sales being the largest. It is very important that your business is exposed to as many of the major business for sale websites as possible so that you don’t miss a serious buyer.
Professional business representation – This step covers the preparation of fundamental information that will help a buyer to decide on whether to purchase your business. How your business is presented to buyers and how well they are handled when they inquire will make the difference of whether your buyer loses interest or moves forward to make an offer. Your information needs to be easy to understand to allow them to see clearly and make decisions quickly.
Make your business attractive to a buyer – The opportunity you are marketing needs to be attractive to a buyer. There are many ways to do this, but if you have a way to make yourself (the owner’s) role redundant and bring in employees to manage the business then this will help your cause. Buyers like knowing that the business can run successfully without owner support even if it isn’t required. If you are a crucial part of the day-to-day operation, start by giving more responsibilities to employees, make sure there are detailed company systems and procedures in place that clearly outline tasks and requirements.
Contact a professional – A great business broker understands what is required to achieve a fast sale. Not only do brokers have the benefit of a significantly larger database of potential buyers for your business but they also talk to people who want to purchase a businesses every day and can often match a particular inquiry to a business that suits their needs. In relation to advertising your business to serious buyers, a broker has the professional experience, understanding and networks to ensure it is done correctly from the start. Hiring a specialist will save you time in not having to source and contact the individual marketing websites and platforms yourself, and will also save you money. The price to market an individual advert for a period of time will far exceed the economy of scale rates that a broker will receive from the same organisation. Brokers can also help you gather the appropriate paperwork, create a detailed document for buyers on your behalf, as well as maintain confidentiality. A good business broker understands the requirements for a quick sale and has systems in place, which helps to ensure that everything is done promptly and comprehensively from the start. If you have limited time, consider how long it would take you to research what you need, design an attractive advert and prepare the documentation, let alone actually qualifying buyers, negotiating the final sale price on your behalf and assisting with the preparation of the sales contract. Instead it might be of interest to focus your efforts on making your business as attractive as it can be.
Negotiating the sale – When negotiating the final sale, make sure the information you provide to a buyer about your business is accurate and most importantly true. If you say anything or provide information that is later found to be false, it may be considered misleading and can scare your buyer off.
Points that will need to be agreed upon:
-Sale price
-Deposit amount (usually 10% of the sale price)
-Contact conditions
-Settlement period
-Handover period or training if required
-Arrangements for existing staff, suppliers, clients
When an offer is accepted, it is time to prepare the contract of sale – When a seller is approaching this crucial step of the sale process it is important to do your research on what aspects need to be included when drafting your contract.
These can include (but is are not limited to):
-Relevant assets to be transferred. Including property, plant and equipment, fixtures, stock and rights to use any names
-Relevant liabilities, including creditors (people or businesses that your business owes money to) and the potential lease of the business’s premises
-The responsibility for remaining employees and their entitlements. It is important to speak with your employees and notify them that an impending transfer of business ownership is taking place at the right time. Advise them whether they’ll be moving across to the new owner or terminating their employment due to the sale. You must give your employees notice of ending their employment with you or provide payment in lieu of notice. When employees transfer with the business, you need to provide all relevant employee information to the new owner.
-Statements about what will happen if any concerns arise (for example, the buyer decides not to proceed, mistakes are uncovered in the contract, etc)
-Possible clauses that will restrict you from operating in the same industry after the sale. These clauses are often to prevent you from competing directly against your sold business. Make sure you are aware of all the terms and conditions of the contract before agreeing and signing.
Business sale contract templates are available online and can be prepared for you after answering a few simple questions, they take a couple of minutes to formulate, downloaded and delivered to you for printing. This is a fast and inexpensive option for a less complicated business sale exchange.
Consider and appoint your professionals – This applies to your accountant and a solicitor that you might decide to use to assist in the preparation and finalisation of your sales contract.
Accountants: Generally, as a business owner you will have an established accountant you currently deal with. If not, then you must be prepared to provide all 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 they have requested or a broker has suggested then remind them the business broker has the best interest of the seller at heart and have been involved with a large number of business sales, so they know what the buyer needs to make that happen.
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. 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.
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.
5) Remember to discuss with your accountant about any possible tax implications. Consider whether Capital Gains Tax (CGT) and Goods & Services Tax (GST) apply to the sale of your business. If you’re selling a small business, CGT concessions may be available. If your accountant can advise you of any possible tax obligations that may arise from the sale of your business, you can also plan to meet them and avoid a potential debt.
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 offer itself. 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. The standard cost for a good solicitor to prepare your contract should be around $1,500 to $3,000. A solicitor will support you and offer advice throughout all the formalities, exchange, and the final settlement of your business.
Appointing a professional will also ensure you correctly transfer your business to the new owner. Once your business is sold you will need to:
-Transfer leases, licenses, and permits
-Finalise tax returns, activity statements and instalment notices
-Cancel your ABN and transfer/cancel your business name
Remember, you are still responsible for any lease agreements and obligations that are part of your business until they are transferred to the new owner. License transfers can take up to several months, so it is important to plan for this early in the process.
There will still be factors outside of your control when being confronted with the stress of a fast sale. But if you implement the tips you have learned above then you can significantly speed up the process and be prepared for any situation. Surround yourself with good advisors – a trusted accountant, a reliable business broker, a great lawyer and knowledgeable family and friends. With great advice, thorough preparation, and realistic expectations, you will stand the best chance in achieving your desired timeframes and be onto your next endeavor before you know it.
