Selling a business can be a complex and time consuming process. When the time comes to sell your business there’s a lot you can do that will increase its perceived value to prospective purchasers. You will also be much better prepared to discuss the sale with prospective purchasers and their advisers.
Be sure that you have a clearly defined reason for wanting to sell your business that you can articulate to others. Have you considered the options to selling your business? If you’re selling because of a shortage of capital you could investigate bringing in an investor or partner. You might even want to hire somebody to manage the business instead of running it yourself.
How saleable is your business?
Is there currently a demand for businesses like yours? You should know the true value of your business as well as how much the market will think your business is worth. Businesses bring higher prices if their metrics are trending upwards and they’re in a period of favourable business conditions. You’ll also have to decide if you’re prepared to wait until you get your price, or whether you can you offer vendor finance to the purchaser.
Premises should be attractively presented and in good repair; it’s best to remove all furnishings and equipment on the premises that aren’t part of the sale to avoid confusing prospective purchasers.
If the business is a partnership you need to have copies of signed partnership agreements. If the business is incorporated you should have copies of all the incorporation documentation, and if there are multiple owners of the business you should be able to document the holding of each owner.
Get the facts together
You’ll need proof of the business’ real income that will satisfy a prospective purchaser, as well as proof of ownership for all furnishings and equipment.
Are you willing to stay in the business for a handover period after the sale and if so, for how long? Will key personnel remain after the sale? You should also know if you can transfer your relationships with key customers and suppliers to the new owner.
You should know what a realistic market rental for the premises would be. If you continue in ownership of the premises, what rent do you expect to charge the purchaser of the business? It’s essential to understand the basis of what your prospective buyers and advisers are using to calculate their particular valuation of the organisation; these need to be clarified so they can be given accurate information and not make unfavourable estimates.
The period of the handover is a variable that can often be used to clinch the sale. Stock valuation will have to be done by an independent source if records aren’t accurate or if the inventory doesn’t balance with those records. As noted above, old stock should be cleared before the sale process begins. All assets on the register should be covered by documentation about their origins and proof of ownership.
Restraint of trade is often a sticking point. For how long will the outgoing owner be ‘locked out’ of the industry? This is something that you must anticipate and understand that some restraint of trade conditions will be likely to be demanded by the purchaser.
Prepare for due diligence
Due diligence is a part of every sale. It enables the purchaser to confirm what the vendor has told them about the business. It also will discover anything the owner was unaware of that might affect the future performance of the business. You’ll need to have tax returns for your business covering at least the past three years, and full documentation for all financing agreements, equipment leases and loans relating to furnishings and equipment.
You also need proof of ownership for all furnishings and equipment owned by the business, copies of any agreements with suppliers, customers and employees, and documentation for all intellectual property that the business owns. It’s essential that all the business’ tax returns, books of account, ledgers and supporting information are in agreement and that you can provide records of all stock in the inventory.
Marketing the business
Identify the people or firms most likely to be interested in purchasing the business and the best ways of communicating with them. Prepare an attractively presented company profile that can be given to prospective purchasers and give them a complete and positive picture of the business.
You have a big part to play during the sale and need to understand that buyers have their own ideas about how a business can be improved. When a buyer suggests something that the business isn’t presently doing this shouldn’t be seen as an ‘invasion’ of your territory; owners should always respond positively and be receptive to such ideas.
Do everything you can to keep the sale confidential. This means having a means of handling enquiries about the business that won’t give away it’s identify and getting signed confidentiality agreements from all prospective purchasers and their advisers.