In Short
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Start with a legal health check to make sure all agreements and records are in order.
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Use your networks and advertising to attract potential buyers.
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Set a realistic sale price and assess buyer suitability early in discussions.
Tips for Businesses
Prepare your business for sale by updating all legal and financial documents. Reach out to potential buyers through your networks and advertise where appropriate. Be clear about your asking price and carefully check buyers’ ability and interest to ensure a smooth sale process.
If you are thinking about selling your business, there are several steps you should take to find the right buyer. Preparing your business for sale can be a time-consuming process. Depending on the complexity of the sale and the scale of the business, you may need to start the process at least 12 months prior to going to market. This article discusses seven key tips to consider when selling your business.
1. Legal Health Check
You should start with a legal health check to ensure your business is in order. This includes:
- ensuring arrangements with key customers and clients are documented correctly;
- having valid and updated employment agreements and a current record of all accrued employment entitlements;
- making sure that all other agreements, such as leases have sufficient time remaining;
- if there are any essential arrangements with suppliers or customers, then these should be documented via formal contracts;
- engaging your accountant to prepare accurate financial statements and reports for the period immediately prior to the sale;
- registering any intellectual property critical to the operations of the business, where appropriate;
- reviewing the company’s members register, ASIC records and tax returns to ensure they are accurate and up to date; and
- reviewing the company’s existing material contracts (including any leases) to determine whether consent in relation to a change in ownership of the business is required.
If there are any essential arrangements with suppliers or customers, then these should be finalised with formal contracts.
You should ask your lawyer and accountant to conduct a legal health check on your business to identify areas that the buyer may consider risky or items that may require action prior to the sale. A business is likely to be more enticing to a purchaser if its house is in order.
2. Upgrades
At each step of the process, you should ask yourself how the buyer would view your business. Conduct many walk-throughs of your business to ensure everything appears clean, well-maintained and attractive. Small pieces of broken equipment or dirty corners may have gone unnoticed for years, but they may make your business less appealing to a potential buyer. You should also complete the upgrades that you may have been putting off, such as renewing exterior signs or repainting, prior to the buyer inspecting your business.
However, consider holding off on more substantial upgrades until you confirm a buyer. This is because you can use them as a negotiating tool. If a buyer can step straight into the business without having to make major repairs or renovations, it will help them make a faster decision to purchase your business.
Continue reading this article below the form3. Use Advertising to Attract Buyers
You can seek to advertise the business yourself or seek professional assistance. You might even find your buyer within your own networks. This may include employees, family and friends, or professional acquaintances, and you should look to leverage these networks. The more trust and knowledge the buyer has about your business, the more likely they are to purchase.
4. Leverage Employees and Personal Networks
While you can certainly attempt to sell your business independently, it is often beneficial to seek professional assistance from experienced business brokers or mergers and acquisitions advisors. Their expertise lies in effectively marketing businesses for sale and tapping into their established networks of potential buyers.
You should never overlook your own personal and professional networks as well. Employees, family members, friends, industry contacts, suppliers, or customers may have an interest or be aware of suitable parties looking to acquire a business. Someone with pre-existing trust and knowledge about your specific business operations is more likely to see the inherent value and opportunities. Hence, you should consider leveraging your network connections by letting them know discreetly that you are entertaining the sale of your business. They may be able to facilitate introductions to prospective buyers you wouldn’t have reached otherwise.
The guiding principle here is always that the more widespread the awareness and transparency of marketing your business for sale, the higher the likelihood of attracting the right buyer at the right price.
5. Setting Your Sale Price
It is crucial to establish an appropriate asking price utilising proper valuation methodology from the outset. If you lack that expertise internally, we recommend considering engaging professional valuation experts or brokers to assist. You want to communicate that price as a firm, realistic figure that will facilitate a sale, not merely an opening number for drawn-out negotiations. Buyers these days will likely dismiss an opportunity entirely if they perceive the asking price as being artificially inflated.
At the same time, it is prudent to expect that the final sale price may fluctuate slightly from the listing price due to typical closing adjustments for items such as inventory levels, outstanding liabilities, prepaid expenses, and similar factors. Prospective buyers will also diligently scrutinise areas where they can potentially reduce the price further, such as a lack of formal client contracts or deferred maintenance issues. In this context, identifying and remedying any glaring deficiencies proactively will prevent unnecessary value erosion in the eyes of buyers down the line. A well-prepared, clean business with substantiated pricing will be far more attractive to qualified buyers and position you to maximise sale proceeds.
6. Setting Your Sale Price
Choose a method to calculate and support your ideal sale price. There are various methods to determine this value. If you are unsure, a business valuer, accountant or business broker can assist you. Set a realistic price and communicate that the business is priced to sell and is not to be negotiated. While it may seem logical to set a high initial purchase price and negotiate down, you risk buyers not taking the price seriously. Also, be aware that:
- the price will fluctuate due to adjustments at handover (e.g. stock, employee entitlements, lease payments and others); and
- buyers will look for reasons to reduce the price, such as key clients not having formal agreements in place. This is why it is crucial to conduct a legal health check before putting your business to market.
7. Buyer Characteristics
Ideally, the eventual purchaser of your business should possess the relevant industry expertise and operational capabilities to successfully take over and run the company moving forward. While your personal priorities may not hinge on the buyer’s specific experience, it will be a key consideration for other stakeholders, such as the landlord and any lenders providing acquisition financing. If you are uncomfortable broaching this subject directly, again, an experienced business broker can adeptly vet and qualify potential buyers’ backgrounds on your behalf.
In the initial discussions, it is also prudent to gauge the prospective buyer’s financial qualifications and ability to consummate the transaction. You should consider inquiring about their funding sources – whether they have sufficient cash reserves or will require approval for debt financing, which should be conditional at a minimum. The business sale process tends to be lengthy, so vetting unqualified buyers upfront saves valuable time and resources.
Thoroughly assessing both the operational expertise and financial capacities of prospective purchasers from the outset further ensures you are negotiating with seriously interested and capable parties. This facilitates a smoother and more efficient transaction, safeguarding your interests while avoiding disruptions to ongoing business operations during the sale proceedings.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Key Takeaways
Selling your business is a substantial undertaking, and there are many aspects to consider when seeking the right buyer. You should:
- make an effort to fix all minor defects before advertising your business for sale so that the business is enticing to potential buyers;
- take time to consider the selling price;
- conduct a legal health check to ensure key agreements can be transferred to the new buyer; and
- utilise business brokers and your own networks to find a buyer.
Being properly prepared will help you find your ideal buyer and also help deal with potential bumps in the road during the sale process. If you have any questions about selling your business, our experienced sale of business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
How can I find a buyer for my business?
You can find potential buyers through your existing networks, such as employees, suppliers, and competitors. Additionally, advertising online or engaging a business broker can help reach a broader audience.
Should I upgrade my business before selling?
Yes, making minor repairs and improvements can enhance your business’s appeal. However, consider postponing major upgrades until a buyer is confirmed, as they can be used as negotiation points.
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