If you are thinking about selling your business, there are several steps you should take to find the right buyer. Just like selling a house, you may want to spruce up your business before putting it on the market to make it as attractive as possible to potential buyers. Preparing your business for sale can take time, and should be commenced at least 12 months before you go to market. This article will discuss 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:

  • entering into formal agreements with key clients; 
  • having valid and updated employment agreements; and 
  • 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 finalised with formal contracts. 

You should ask your lawyer to conduct a legal health check on your business to identify areas that the buyer may consider risky. They can then advise you on how to reduce that risk. This is called vendor due diligence and can be very helpful further down the track. A buyer is more likely to be attracted to a business that provides them with the security of formal contracts.

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 it 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. You can incorporate an obligation in your business sale agreement for you to finish these larger upgrades before the sale is finalised. 

3. 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

Looking to management-level employees is a great way to find a potential buyer. They will have an adequate understanding of the business and usually will have a trusting relationship with you. In these instances, a potential issue might be the capital to purchase the business. If your employee cannot finance the purchase price, you may consider providing vendor financing. This is a loan and means that at handover, the buyer may not pay any money but will make ongoing scheduled payments. 

This is a high-risk agreement as you are handing over your business without receiving the full price. You should enter into a loan agreement and a general or specific security agreement with the buyer to help reduce the risk. 

5. Consider Business Brokers  

Business brokers are a useful resource to assist you in finding a buyer. They have experience and networks that they can leverage to help you sell your business. Like all services, they come at a cost and it is important that you understand what they will and will not do for you. Many will conduct a valuation of your business, prepare marketing material, actively contact their networks and deal with all potential buyers. Their expertise should specifically cater to your business, so do your research to find the right business broker that suits your needs. It is important that if they are speaking to a potential purchaser, they can confidently answer questions about the industry and your business. 

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

The eventual buyer should ideally be someone who has the relevant expertise and capability to purchase and operate the business. While you may not be too concerned about the buyer’s experience in your industry, your landlord and any finance provider will require this experience. If you are uncomfortable asking the buyer about this, your business broker can help you. You should also include the buyer’s access to finance in the initial discussions. Enquire whether they have cash or require finance and if so, whether they have conditional finance approval. The process to sell your business can be a long one, so you should not waste your time with unqualified buyers. 

 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, get in touch with LegalVision’s business lawyers on 1300 544 755. 

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Matthew DeRusha

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