So, you have decided to sell your business. Congratulations!
There’s nothing better than passing on the baton the the next small business owner. Whatever the reason that’s led you here most people never even try to run a small business so don’t know what it takes.
Selling your business can be done with clarity and purpose and you deserve to be successful in your transition from business owner to your next chapter and realise the value of your business and years of hard work
BusinessSales.com.au has been designed to streamline the process of selling a small business for both business owners and their business brokers. Our instant confidentiality process helps connect more qualified buyers with sellers and brokers faster – all digitally, with no need for printing, signing and scanning manual paperwork.
Selling a business can be tough – but so are you. We’ll take every step with you, so let’s get this business moving.
The reality is, that most small business owners are so busy running their business that they fail to have the foresight or headspace to plan. The difference between a planned sale and an impromptu sale can cost tens of thousands or even the chance to sell at all.
If this sounds like you – consider hiring a business broker to help you sell your business.
Regardless of how you choose to sell your business, there are things you can start now to prepare your business for sale.
Why Early Preparation is Crucial
Putting together information a buyer will want and need may not take long. But….preparing for sale should ideally start 3-5 years before you list your business for sale. Why? The financials of the business should be consistent over time. Preparing the financials may require your assistance and management from your accountant. Managing stock levels, cash flow, accounts payable and receivable are some examples that can be managed.
This process is a great way for the owner to be in control and aware of the business in a financially intimate way and may assist in ironing out “controllable” fluctuations that would need to be explained to a buyer one day. Seasonal or external influences within the business may be outside your control, but being mindful of what you can control will help a great deal.
Preparing well in advance also allows the building blocks to all the other key areas of the business to be considered, such as building the culture and team, systems and technology, building the brand (such as online reviews) and marketing strategy, monitoring the assets and much more.
Perfection with a sale is almost impossible but these steps will definitely help get you much closer. One thing an owner can do for themselves and perhaps their team is to audit the business. Start with a SWOT analysis, brainstorming both internal and external factors (Strengths, Weaknesses, Opportunities and Threats) plus invite an external assessment from your accountant, solicitor and trusted external parties.
Do an Evaluation or Audit of Your Business.
This may include:
- Financial review which covers financial accounts over the last 3-5 years, projections/ budgets for the next 12 months, credit agreements and loan obligations.
- Operations and organisation, which outlines the organisational chart and procedures, staff training/development/induction manuals/assessments and pathways for staff, multi-skilling and risk management of key personnel.
- Supplier terms and agreements. Ensuring they are optimised and transferable.
- Customer contracts and agreements. Ensuring they are transferable.
- Business brand. Managing testimonials, reviews and awards.
- Digital assets and IP-related agreements.
- Legal, including third-party agreements, leases of the site and/or assets, government registrations and authorisations.
The last thing you want is to accept an offer and believe this is the amount of money you will see flowing through to your bank account.
Remember, the adjusted sale price could be very different after adjustments like staff entitlements, lease payouts, deposits, gift vouchers, creditors, bonds, rent and utilities are applied to the offer you accepted.
Then, following settlement, you may still have other costs and liabilities from your accountant, solicitor, business broker, creditors, owed superannuation, PAYG and tax implications.
Also, don’t forget you might be eligible for some refunds with insurance companies, workers’ compensation premiums, lease bonds, rent paid in advance etc.
From this evaluation, you can work out which needs improvement before you sell your business.
Improve Your Financial Credibility
Buyers may or may not be experienced when reviewing your financials, but they will almost always rely on their accountant who will review, assess and scrutinise yours. Plan regular meetings with your accountant to go through the books and do a review of your accounts so that you know your numbers and any variances. Look into your business’s cash flow, revenue and expenses. Simple strategic changes and shifts can mean a larger net profit, which in turn can influence your business’s value.
Review your debtors and creditors and ensure they are in check. Keep a clean balance sheet and be sure your tax returns and BAS statements are up to date and available. Hot tip, make sure you don’t fall behind with the ATO as this can cause issues or weaken your position when it comes time to sell.
Your financials will be more credible and provide confidence to the buyer if you can explain any variations or trends and, most importantly are clean and consistent, especially when matched with Tax returns and BAS statements.
Get Your Business in Order
Review the business’ standard operating procedures (SOP) or manuals. If you don’t have a well-documented operation or system, then it’s time to consider one.
Induction, training, procedural or operating manuals may benefit you as the business owner and/or be a legislative requirement but when the time comes to sell, they also make it much easier to transition the business to the new owners.
Having manuals is a big task and most small business owners don’t have the time or inclination to put these together so by doing so your business will stand out.
At a minimum, have all things you can control well organised and documented, e.g. staff records, invoices, ledgers, suppliers, customers, repairers, reps, alarm codes etc. You can just use Excel and a filing cabinet as long as it’s organised. If a buyer needs or wants to perform due diligence you will need to demonstrate you have these available quickly.
If your systems are a weakness, let the buyer know, it might just become one of their strengths and an area they look forward to improving.
Maintain a Strong Culture and Team
The last thing a buyer wants to find out is that your employees are new, un-trained or that you have a high turnover of staff. Buyers may look past the owner’s involvement once the sale goes through if the business has a well-established and committed team that is staying on and keen to assist and support the owner beyond settlement.
A long-serving team that has been looked after is a great asset because they will more often than not provide the new owner with the same level of productivity and commitment.
As a seller, you should ensure that the team are harmonious and stable as the buyer will want this to continue (in most cases).
Review and Formalise All Agreements
Make sure that employment terms, third-party agreements, contracts and awards are in order and up to date. Formalise or review contracts with your suppliers and customers as well.
Buyers will be nervous and/or perceive risk where relationships exist instead of written terms and agreements. Be sure to provide the buyer with alternate supplier options so they feel other options exist. Make sure any written agreements are transferable.
The verbal agreements you’ve made with staff, clients and suppliers will have little to no value to the new business owner. If your business has all agreements and contracts up to date and in order, it shows good management on your part and is attractive to potential buyers.
Make Physical Changes to Your Business
Before selling a house you clean up the yards, give it a coat of paint, replace carpet or guttering and probably de-clutter. The same principle applies to your business.
When selling your business, a buyer will see all things physical, such as your premises but also your online presence – e.g. your website, social media accounts and google maps listing.
If you take the time and effort to get your business well-presented in the market, buyers will be more confident that you have a well-managed and maintained business. Hopefully, this is the reality! If possible, remove anything that won’t be included in the sale or be very clear otherwise.
Never Ignore Your Digital Assets
If your company has an online website and social media accounts, then these will also add value to your business. Take an inventory of your digital assets in the same way that you take an inventory of your tangible assets. Make sure domain names, trading names, trademarks, logos, templates etc. are in order and up to date.
Assess how your website contributes to your business. Buyers often want to know how much revenue online sales contribute, the mix of sales, how your customer experience works, how you track and improve your website etc. Websites are fast becoming the “storefront” and can enhance a business well beyond any physical location.
Have a Transferable Growth Plan in Place
There is nothing worse than saying or marketing a business as “it has potential”. This is not tangible and means very little to anyone. You need to articulate and demonstrate with clarity and transparency not just where the current value is but where any future opportunities may be logical.
Once you as a seller get to know the buyer and learn more about their past experience and skills, share with them your weaknesses as they might be the buyer’s natural strengths and a way for opportunity going forward.
Providing forecasts and projections can be very risky, so be careful. If you do have a plan or strategy on how you might increase sales, decrease purchases and therefore increase the net profit result, it might be worth sharing especially if there is a basis for such commentary.
For example, you might have a buying group you have joined with better margins, or a main supplier offering a better deal or the business may have a new contract etc. Just be sure to protect yourself and get advice.
Another way for a seller to share where the growth might be is to simply say what you don’t do well or at all that the business could perhaps benefit from. For example. You might say to a buyer, “We don’t do any marketing as we primarily rely on referrals and word of mouth”, or “I don’t work in the business more than 10 hours per week, but a new owner could drive and lead the team with more passion and commitment”, or “We haven’t put up our prices for 3 years and if we did the bottom line would be much better” etc. These examples are general in nature so think about the opportunities in your own business.
Resolve any Issues
This could be any litigation or insurance matters, contracts or agreements to be renewed or signed off, managing any long service or maternity leave requests, audits or governance, licence renewals or similar.
Buyers don’t want to be dealing with any legacy issues that should have been sorted by you. The cleaner your business is, the more likely they will want to make a strong offer and ultimately buy your business.
Thinking about selling your business?
Let’s face it selling your business can be tough.
Anything worthwhile is!
BusinessSales.com.au was purpose-built to give hardworking business owners the opportunity to pass the baton on to a new owner without all the smoke and mirrors.
Are you wondering, “How do I sell my business?” If you don’t know where to start or how to move forward with the sales process – we’re here to help.
We can help you work out who and how to best sell your business whether that be selling your own business yourself or hiring a professional business broker.