9 Tips To Prepare Your Business For Sale!

So, you have decided to sell. You might be tired, frustrated, retiring, suffering ill health, ready for a new opportunity or wanting to realise the value of your business and years of hard work – meaning it is time to cash in!

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.

BusinessSales.com.au has been designed with you in mind as a private seller or business broker. The new innovative way of listing and connecting has never been more transparent and efficient. The search engine for business types and locations is completely re-built has more filters and capacity than any other business sales site in Australia. The instant confidentiality process helps connect more qualified buyers with sellers and brokers faster – all digitally with no need for a typical manual process.

Selling a business can be a complicated process, and whilst there are deals that can happen within months, they are the exception as many businesses can take several months to a year on average to complete.

The majority of business owners don’t properly plan to sell and don’t consider what is really involved. Those business owners looking for a planned and strategic exit from their business will get a better result and sell quicker. Preparing for sale will mean different things and at vary degrees for different businesses perhaps based on size and scale or business type.

All owners considering selling should prepare the information covering all areas of the business and put on the buyers hat by considering any perceived risk or objections a buyer may have. Speaking with a business broker, your accountant and solicitor can really help with this step.

The reality is most small business owners are so busy running their business they fail to have the foresight or headspace to plan. The difference between a planned sale or an impromptu sale can cost tens of thousands or even the chance to sell at all.

Selling your business when the financials are consistent and in growth is the perfect scenario. When the overall business is in a great place you should have more control, get more buyer enquiry and sell at a premium. It also becomes easier to support and communicate what is for sale, the value, and the opportunity in a purposeful manner. This will translate into a more efficient process and take the un-necessary time lags and complexity away.

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.  Grooming the financials may require your accountants assistance and management. 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 iron out “controllable” fluctuations that would need to be explained to a buyer one day. Seasonal or external influences within the business may not be in your control but being mindful 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.

So, what steps should you take in preparing your business for sale? Here’s our guide checklist…

Do an Evaluation or audit which also can be part of the above SWOT analysis

This may include:

  • Financial synopsis which covers financial accounts over say 3-5 years, calculated projections, credit agreements, 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 flow through to the bank account. The adjusted sale price could be very different after any adjustments. Staff entitlements, lease payouts, deposits, gift vouchers, creditors, bonds, rent and utilities can all be adjusted from the offer you accepted. Then following settlement you may still have other costs and liabilities with your accountant, solicitor, business broker, creditors, owed superannuation, PAYG and tax implications. You may also be eligible for some refunds with insurance companies, workers compensation premiums, lease bonds, rent paid in advance and accounts receivable.

From this checklist, you must figure 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, asses and scrutinise.  Plan regular meetings with your accountant to go through the books and do an audit of your accounts so that you know your numbers and any variances. Look into your business’ cash flow, revenue and expenses. Simple strategic changes and shifts can mean a larger net profit position which in turn can influence the supportive listed price.

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 know and understand them, can explain any variations or trends and most importantly that they 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. Certain induction, training, procedural or operating manuals may benefit you as the business owner and/or be a legislative requirement but when it comes time to sell be easier to handover and 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.

As an alternative have all things you can control well organised and documented. Staff records, invoices, ledgers, suppliers, customers, repairers, reps, alarm companies etc. You may use excel and a filing cabinet but do this with excellence. If a buyer needs or wants to perform due diligence you will need to demonstrate how you file and have these quickly available.

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 are staying on and keen to assist and support the owner beyond settlement.

A long serving team that have been looked after are going to want the same going forward and should 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. In the same way, formalise or review contracts with your suppliers and customers as well. Buyers will be nervous and/or perceive risk where relationships exist over 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 be attractive to potential buyers.

Make Physical Changes to your Business

If you are selling a house generally you would clean up the yards, paint, replace carpet or guttering and you probably de-clutter.

When selling your business a buyer will see all things physical such as any premises but also your online website, social media accounts and more. If you take the time and effort to get your business well-presented 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, copy writes, art work, templates etc are in order and up to date.

Assess how your website contributes to the business. Buyers often want to know how much revenue online sales contribute, the mix of sales, how the buyers experience is and how you track and improve your website, brand and e-commerce. Websites are fast becoming the “store front” 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 “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 buyers 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 to provide some perspective.

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 issues that should be sorted and in place. The cleaner and easier the business is the more likely they will want to make a strong offer and progress.

Next Steps

Selling your business can be tough, but so are you.

We’re here for you, whether you want some professional guidance to keep you on the right track, or one of our trusted professionals to take the reins – you can count on us to keep you and your business moving.

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