How to sell your business

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Take your time & do it right

So, you’ve decided to sell your business. Or maybe you’d like to, but you think of the work involved and decide it’s too hard. Perhaps you don’t know where to start or the resources available to you. Maybe it’s been in your family for years, and you’re emotionally tied to it.

The hardest part is getting started.

 

Wherever you are in the decision-making process, selling your business can be stressful. But if you give yourself time to plan and use the resources available, you can minimise the stress while working towards getting the price you want.

Taking the first step

The first step in selling your business is deciding when you want to sell. Immediately is not an option because it can take up to two years to get a business ready for sale. And it’s something that shouldn’t be rushed because rushing can impact:

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The sale price

If you don’t present your business in the best light, offers may be low. You don’t want to cheat yourself out of the equity you’ve worked so hard to build up.

The potential buyer’s trust

If you aren’t ready or gloss over details because you haven’t pulled them together, then the potential buyer may think you’re hiding something.

Employee morale

Employees are perceptive, especially when it comes to their livelihoods. A rushed sale could plant doubts that they matter. And high employee morale is crucial when someone is looking to buy your business.

Include employees early on and let them know you’ll be needing their help to ready the business for sale. After all, their futures will be impacted. And who knows, one of them may even be interested in buying your business!

What to do in the early stages

Time to roll up your sleeves and start making changes that will make your business attractive to potential buyers. These may include:

Increase your net profit

Boosting your net profit can improve your business value by five to 10 times per dollar.

In the Australian version of Small Business For Dummies (4th edition), Veechi Curtis writes:

“I knew a husband and wife team who ran a nursery business with a turnover of $600,000 and average net profits of $50,000 a year. As part of preparing to sell, they bumped up prices by 10 per cent. Sales only dropped a little but, even so, they immediately made an extra profit of $40,000, increasing average profits to $90,000 a year. The result was an instant increase in the value of their business of about $300,000.”

Avoid new projects or products

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This is not the time to undertake ambitious projects or product launches.

There’s a lot to prepare for when selling your business, and you don’t want to be distracted by taking on time-consuming new projects or product launches. Instead, keep those in mind to share with the new owner.

Not only will this free you up to concentrate on your sale, but it will show the new owner that you care about the business’ future.

Ask staff

Your employees are in a position to give you ideas on how to streamline processes and cut costs, but are often overlooked in favour of someone who has a business degree. Never underestimate the ways they can make their work quicker and easier, saving your business both time and money. And potentially boosting your sale price in the process.

Love your financials

Financial reporting can get lost in the busy-ness of business, but it’s imperative you have reports for at least the past three years available to prospective buyers.

These will include:

Profit and loss

A Profit and Loss statement summarizes the revenue and costs for a specified period, usually a fiscal quarter or year. Use a spreadsheet to help you work out your net profit, which is crucial to understanding your business’s value. Want a simple one? Download a template here.

Balance sheet

A list of your business’s assets and liabilities, which will give interested parties an understanding of your business’ financial health. You can find a template here.

Aged receivables

This report is a list of unpaid customer invoices. Go through and purge any debts unlikely to be paid, which will leave you a starting point to collect the rest.

And don’t forget the tax implications of selling a business. Speak with your accountant as soon as you decide to sell your business because you’ll be taxed on the sale. And while tax is inevitable, no one enjoys giving the Australian Taxation Office more money than they have to.

In addition, your accountant can help you with ways to minimise your tax that include timing, superannuation deposits and more.

Related: The small business tax offset — what you should know

Where to advertise

Once you’ve spoken to your employees, start spreading the word that you’re looking for a buyer. Word-of-mouth is powerful, so talk to your customers and suppliers too. You’ve built trust with them over the years, and it may be an opportunity too good for them to pass up.

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Photo: Yonghyun Lee on Unsplash

Think about approaching a competitor. Competitors can spot value and may see buying your business as the best way to expand theirs.

Another way is to engage a business broker, and the Australian Institute of Business Brokers is a great place to start. Their members also include valuers who can give advice on the value of your business and legal and financial liabilities.

Court the buyer

Keep in mind that the buyer may be looking at other businesses for sale. Make it as easy as possible to choose yours. Include the information below and present it in a folder for the buyer to peruse.

  • Your story. Tell buyers why you started, how you started, who your customers are and the reasons you’ve been able to keep them.
  • Financial reports. Have these ready. It makes you look disorganised if you have to scurry around looking for them.
  • Employees. List your employees’ skills and their earnings.
  • The reason you’re selling. Be honest about this. It doesn’t look good if you tell the buyer one thing and they hear different from someone else.
  • Give a clear picture. Be clear about what the purchase price includes. It doesn’t do for the buyer to be asking straight questions while you give vague answers.

It may sound like a lot of work, but enlist your accountant, a business broker, your employees and your customers to help. And don’t forget the Australian Government’s online resources like:

Business.gov.au – An excellent resource to start you on the way to a successful sale.

The Australian Taxation Office (ATO) – A good place to learn the filing requirements and tax implications of selling your business.

Australian Securities and Investment Commission (ASIC)Look here for help transferring your business name to the new owner.

If you’d rather watch a video, the ATO has a series of seven videos hosted by Scott Pape (The Barefoot Investor) and a panel of experts.

Sell your business for what it’s worth

Selling your business is an involved process, and you need time to prepare while you keep the business running. Remember, a slump in performance can result in you not getting the price you want and deserve.

Give yourself at least two years to get your business in order, talk to your employees, cut costs and increase net profits. Then create a sales booklet and present your business in the best possible light to potential buyers.

Editor’s note: Don’t have a website yet? Spread the word about your sale with a mobile-friendly WordPress website. Get one up on the web today!

Alan Taylor
Alan Taylor is a Sydney-based copywriter who specialises in simplifying complex information. He craves research due to his natural curiosity, while his love of words has him pondering better ways to engage readers. More than anything, he loves the challenge of a blank page. You can connect with Alan on LinkedIn.