How To Sell a Business

Introduction

Maybe you started it, maybe you bought it. Either way, you've invested a lot of yourself in the business you own. Now it's time to sell it and move on. A business you've owned has taken your time, effort and financial investment, and selling often is a bittersweet proposition. The challenge is to find an effective way to sell your business for the best price and terms in a reasonable amount of time.

Selling your business will be one of the most important things you'll ever do, because unlike virtually every other business decision you've made over the years, you'll only do this once. You get a single chance to put a price tag on possibly years and years of effort — and once you sign the sales documents, it's over.

You'll make life easier, both financially and personally, if you make an effort to understand the steps in selling a business

Financials

Obtain from your accountant an abridged profit & loss (trading) statement for at least the last financial year but preferably 2 to 3 years history.

Restraints

You should be aware or  seek advise from your solicitor as to any special restraints that could be associated to the selling of your business.

Plant & Equipment

Prepare a list of Plant & Equipment that will be sold with the business. Items which are under lease or hire purchase should be identified as under lease or hire purchase unless you intend to pay them out at settlement of the business. The plant and equipment list, which will be provided to purchasers, should not show individual prices.

Licenses

Make sure if your business requires a license or permit to operate that they are current and transferable to the new owner. Obtain the relevant paperwork to enable the new owner to apply for the license and be aware of the time frame this process takes.

Agencies and Franchise

Obtain the relevant information and paper work to enable the transfer of these agencies to the new owner and be aware of the time frame this will take.

Business Premises

Obtain a copy of the lease and review your lease, if you are in leased premises. Make sure you have 3 to 10 years remaining and the lease is transferable to a new owner. If not, negotiate with the landlord so as the new owner is able to secure an extension on your lease for additional time and, on what conditions the transfer will be accepted. If you own the business premises, consider having it valued now by a registered valuator or obtain a verbal curbside valuation from a Valuator or like person as part of your preparation and decision-making.

Appointment of Business Broker

To appointment or engage a business broker or real estate agent in selling your business an appointment or authority must be completed and signed in the relevant form.

It is a breach of the Property Agents and Motor dealers act 2000 for an agent to preform any service for a client prior to a form PAMD 22a being completed and signed by the client. The relevant form PAMD 22a is here and the PAMD Act is here.

Price The Business

From the above information you, your accountant and your business broker can arrive at the price you can expect for your business by one of the methods explained in Value a Business. If you overprice your business the time it takes to sell just stretches out to the point where it is mighty shop-worn merchandise by the time it finally sells . . . if it sells. The best test for the price arrived at is “Would you or your accountant  or your business broker buy this business at this price”

Selling Memorandum

Your business broker will prepare a Selling Memorandum which would normally include what is for sale, were (location) and for how much, photographs of the building and interior, information about the business's history, the market in which the business competes, the company's products, its operations and source of products or raw materials, operating days and hour, management, staff numbers and positions, reasons for selling, lease period and if freehold, the value of the freehold. A copy of the financials from your accountant, a list of plant & equipment and  the shop lease details should be in this memorandum. Before this memorandum is provided to any purchaser a confidentiality agreement should be signed.

One Sheet Summary

Your business broker will prepare from the above Selling Memorandum  a one sheet summary with the location of  the business, description of the business, price of the business, approximately the stock value, the turnover of the business, the net return of the business, operating days and hours, number of staff employed, how long the business has been operating and how long you have owned it, the reason for selling,  if the premises are leased or freehold if leased  the length of the lease and  a short summary of the benefits the purchase of this business will bring to the new owner.
The reason for the one sheet summary is to allow at low cost the ability to fax or e-mail an interested person enough information to wet their appetite and ascertain if they are interested in pursuing the matter further.

Small Business Selling Memorandum

If the business is of a small to medium size then the one sheet summary with the location of  the business, description of the business, price of the business, approximately the stock value, the turnover of the business, the net return of the business, operating days and hours, number of staff employed, how long the business has been operating and how long you have owned it, the reason for selling,  if the premises are leased or freehold if leased  the length of the lease and  a short summary of the benefits the purchase of this business will bring to the new owner together with photographs of the building and interior, financial statements, list of plant& equipment and a copy of the lease is all that is required as a selling memorandum.

Advertising

Advertise your business is for sale but use common sense. Fewer than 5% of the general population are prospective business buyers, so focus only on the established 'business for sale' advertising venues that this 5% is following. Don’t run a massive ad campaign. It isn't required. Ads should be tested carefully and slowly. They should be 'blind ads' where the identity of the business is camouflaged. Otherwise, you run the risk of over-exposing your business. People are naive and think businesses sell as fast as houses. Expect that it may take three months or as long as a year - or even longer - to sell.

Inspection of the Business

Once the selling process is underway  take some steps to increase the likelihood that your business will sell. Spruce up your business physically, throw out garbage, take out all boxes stacked in the office, straighten that crooked door, paint the office, or whatever else is necessary to make your business presentable.

Before inviting buyers to look at your business, try to look at it, as someone would see it for the first time. A messy office may indicate to some people that a business is sloppily run, and a buyer’s first impression is critical because first impressions are important to selling the business. You want to do everything in your power to help a buyer feel comfortable and to overcome the uncertainty of buying a business.

Help yourself as well by being honest in all meetings with potential buyers. When you are meeting with a buyer, paint a realistic picture of what your business is doing. A buyer will find out the truth eventually and trying to present an overly rosy portrait is a big waste of time for everyone. Unless you come across as honest and truthful, a buyer will not believe what you say about the business.

Usual Foreplay Process

The buyer normally via the business broker will seek more information from your accountant or yourself in the way off:
Turnover for the last few month of trading,  the amount of debtors and creditors the business carries, sustainability of agencies/contracts the business might have and numerous other items which will dispel any concerns the buyer might have.

Closing the Sale

Once the business broker has  located a buyer and dispelled any concerns that might exists in the minds of the buyer in relation to your business an offer to purchase by the buyer is produced in the form of a contract. This contract is normally drawn up by the business broker or the solicitor for the vendor. The contract, if satisfactory to the vendor (seller), is then signed by the vendor to make it a binding contract of sale.

Remember these points:

• That a business is worth what a buyer will pay for it at a point in time.
• When the buyer prospect makes an offer to buy .. It's only worth the paper it's written on... No writing = No Contract.
• Your business isn't sold until the contract has settled and you have the cash.