Why do I want to sell my business?
Be honest with yourself and consider the real reason for wanting to sell your business. Have you had a tough month of business? Are there issues with employees, or suppliers making you feel overwhelmed? You should ensure that wanting to sell your business is not just a “way out” and that you are genuinely ready to move on.
How long does it usually take to sell a business?
Selling a business is a complex process and takes time. How much time depends on the type of business and its complexity and exclusiveness. It is important not to rush the sale process, and reevaluate your business growth plan, so your business is more appealing to prospective buyers.
Who will you sell your business to?
The purchaser is likely to be a supplier, client, employee, family member or competitor.
If the purchaser is a competitor, your business will allow them to expand their client base and, in consequence, their market share. For these reasons, a competitor may be willing to pay a higher price.
The sale of a business to an employee is more likely to proceed over a number of years, with the employee buying the business over an agreed period of time.
If you are hoping to keep the business in the family, you will need to consider factors such as who will manage the business.
Who you sell your business to will determine the type of agreement required. For example, if you sell your business to an employee, you may need to consider a shareholders agreement.
What to sell and what to keep?
The assets included in a business sale will obviously differ from business to business.
You need to clearly define what is included in the sale, so the purchaser is clear on what they are getting. For example, the sale may include business contracts, employees, any IP, access to key assets or property.
It’s also a good idea to include an ‘Information Memorandum’ or a ‘Term Sheet’ in order to provide a clear indication of what you are selling to potential buyers. A lawyer can assist you to prepare these documents.
How much is your business actually worth?
The value of your business is usually calculated on your net profit multiple, which is determined by a number of factors including its financial history, forecast of earnings, management team, operational processes and your business brand.
All of the above factors are used to determine what a potential buyer will most likely be prepared to pay for your business.
Getting a professional internal valuation and forecast is recommended as it can help make changes which allow for a higher sale price.
How do I prepare to sell my business?
Preparing to sell your business is a massive task and requires a lot of your time, energy and emotion. We do not suggest undertaking this process alone and recommend you seek legal and other relevant professional advice to help make the process less stressful.
Review your contracts
It is important to conduct an assessment of all business contracts before listing your business for sale. This is because potential purchasers will probably want to review the business’ contracts and confirm that all contracts are effectively in place with customers, vendors and third parties.
It is obvious from the above discussion that preparing to sell a business requires careful planning and patience.
If you want the sale of your business to provide a comfortable lifestyle and future for you and your family, it’s vital to get the right advice before selling.
This article is general information only and does not take into account your specific circumstances. You may not rely on it as legal advice and it does not create a solicitor-client relationship between you and Douglas Cheveralls Pty Ltd. If you or someone you know wants more information or needs help or advice, please contact us.