What you need to know when selling your business
The time may come when you want to move on or retire, and extract as much value as you can from your enterprise. But selling a business is a complex venture, and how much you profit will depend on the reason for the sale, the timing, the strength of the business’s operation, and its structure. Here’s how to approach it:
1. Reasons for the sale
Why have you decided to sell your business? Some of the common reasons are retirement, partner disputes, illness, becoming overworked, and boredom. Some owners consider selling up when the business isn’t profitable, but this makes it harder to attract buyers. Consider the business’ ability to sell, its readiness and your timing.
There are many attributes that can make your business appear more attractive, such as:
- Increasing profits
- Consistent income figures
- A strong customer base
- A major contract that spans several years
2. Timing of the sale
Prepare for the sale roughly a year or two ahead of time. This will help you improve your financial records, business structure and customer base to make the business more profitable. You might also want to sell your business when economic markets are expanding and there is more appetite for deals.
3. Get a business valuation
You’ll need to determine the value of your business to ensure you don’t price it too high or low. There are different methods you can use to value your business, but it helps to use an expect who can give you a detailed summary and educated estimate.
As with a house valuation, the price it is valued at isn’t necessarily the price it will sell for. Prepare for haggling and be ready to defend your estimate price with lots of supporting facts and figures.
4. Consider using a broker
A broker will help you find buyers and secure the best deal. Although you pay between 1% and 10% of the business value to the broker for their services, the higher price you may achieve should outweigh the costs.
Using a broker will save you time finding buyers and negotiating deals. As they usually work on commission, they’ll work hard to get the highest price for you to increase their earnings.
5. Preparing documents
Gather your financial statements and tax returns from the last 3 to 4 years, and review them with an accountant. In addition, develop a list of equipment that is being sold with the business. Then create a list of all contacts who relate to the business (sales, suppliers, etc.) and dig up any other relevant paperwork. Collate all of these documents, and create copies to distribute to potential buyers. Your information should also provide an operations manual.
6. Finding a buyer
A business sale can take between six months and two years, and finding the right buyer can be a challenge. Ways to find buyers include listing your business on a particular website which does this, advertising it in local or business publications, and by using social media. If you’re using a broker, they will be able to find the best places to list and promote your business.
Get two to three potential buyers in case the initial deal falters. Allow some room to negotiate, but stand firm on a price that is reasonable and considers the company’s future worth.
7. Carry out the sale of the business
Your solicitor will usually take you through this step, helping you review agreements and work towards an agreed sale date. Here are the main things involved:
- Purchase and sales agreements
- Lender documents – these will need to be reviewed if the buyer is borrowing money
- Lease agreements (if there is a leased premises or equipment)
- Bill of sale
- Non-compete agreement – you may be asked not to start a new business in direct competition
8. Handling the profits
Create a plan outlining your financial goals, and learn about any taxes associated with the sudden wealth. Speak with a financial professional to determine how you want to invest the money and focus on long-term benefits.
Remember, selling your business isn’t the only way to move on from it – there are various other exit strategies you could consider instead. Talk to your accountant about which of them is best suited to your personal circumstances and goals.