Preparing your business for sale
The time has come to put your exit strategy into place and to sell your business hopefully at a profit so that you can recover your investment of money and time. You should start planning your sale well in advance as there are several steps you must take to get your business ready to sell. Although you may think you know every aspect of your operation it may be useful to have another look at your balance sheet and profit and loss statements and adjust them to provide the information a prospective buyer will require to make the decision to buy your business.
Business financials are usually intended to reduce income in order to reduce taxes. Depreciation schedules are used to create expenses to reduce taxable income and may not actually reflect the market value of the assets. It may be necessary to adjust the balance sheets to reflect the true value of your assets and to demonstrate to the buyer the profitability of the business.
The income you take from your business may be either to much or too little. Consider adjusting these figures so that your buyer may see how much he or she can expect to make from the business.
Your buyer’s finances will also be different from your own so those payments relating to your own credit arrangements should also be adjusted.
What are you selling
A business is more than just its stock and plant and equipment. There may be significant goodwill or intellectual property included in the sale which must be identified so that the business may be properly priced.
Intellectual property may include patents, business methods and client lists. Other property may include licences and permits necessary to operate the business. If these assets can be assigned, they will add value to your business. Plant and equipment are usually organised by category – assets that are owned by the business, those that are leased and those that are rented.
As all assets must be passed unencumbered, hire purchase and leases must be paid out prior to the settlement of the contract or arrangements made to pay them on settlement. You should contact your financiers and creditors for information about their requirements.
If you lease premises, a good lease is a valuable asset and can add considerable value to your business.
Whether buying or selling business, there are more parties to the transaction than just the buyer and the seller. One, if not the most important of these is the landlord.
Where your business is situated contributes to its value. Your business may rely on passing trade and there may be significant goodwill attached to the location of the business. Contracts are therefore usually conditional on the landlord consenting to the assignment of the lease to the buyer.
It is important therefore to ensure that there is a sufficient term remaining on your lease that you have options for further terms to ensure the best value for your business. Amendments to the lease to include additional option periods may be requested by a tenant at any time provided the tenant is willing to bear the cost.
Finding the right buyer for your business will depend on how well the business is presented and marketed. The nature of your business will often determine whether it is best marketed locally or whether a wider audience may be required. In either case, presenting your financials and your business in the most favourable light will enhance your chances of achieving the price you want.
Throughout this whole process confidentiality is important. Giving early notice of your intentions to your employees, creditors or customers can have an adverse effect on your business. Confidentiality is also important when giving your financial information to prospective buyers and you should only do so when the buyer enters into a confidentiality agreement.
This is particularly important when selling a retail business as the law requires that you provide your buyer with financial information, a copy of your lease and the relevant disclosure documents prior to them entering into a contract for sale and without the protection that a contract may provide.
You may consider your employees your most valuable assets but they may also be an expense to you if they do not accept or are not offered employment with the new owner. Be prepared to pay out employee entitlements at settlement. These may include redundancy payments and long service leave in some circumstances.
Most contracts will contain some form of restraint to prevent you from competing with the business you have sold. The restraints should only be what are reasonably necessary to protect the value of the assets including goodwill that you have sold. The restraints should not be too wide geographically or too long in time. How wide and how long will depend on the nature of the business. But regardless of whether or not you intend to work in the type of business, care should be taken that the restraints will not impede you from working.
And lastly, you have made some money in the sale and if it wasn’t enough that you have been working for the tax man all these years, he may still want a contribution from you in the form of capital gains tax. See your accountant. You may be eligible for a concession or exemption.