It is crucial that you understand what steps you can take to get the highest price for your business. Getting this wrong can leave many thousands of dollars on the table, money better in your pocket.
Equally important to the actual sale price is the time listed on the market, plus the terms and conditions that come with the deal.
The first thing that any business owner needs to know is what your business is worth.
Have Your Business Appraised
As a private seller you have a few options to determine a fair asking price when listing your business for sale.
- Ask your accountant
- Arrange a formal valuation which will cost
- Engage a business broker.
Business brokers can provide a price guide and develop strategies for supporting the asking price and then also manage the terms and conditions using their experience when negotiations commence. Brokers also may have direct reference and insight with comparables, understand current demand and what is happening in the market.
Research The Market Yourself
If you were about to sell your house or even a car generally you would research by going online seeking comparables as a point of reference. Websites like BusinessSales.com.au or similar sites could be a way for you to start understanding what your business might be worth. Be mindful though that there are so many variables that can affect a sale price which listing sites don’t have. Asking prices are often very different to sale results.
You can also search online for blogs, newsletters or reports that might provide information on how to price your business. You might find benchmarking information or online appraisal tools. These though are a guide and don’t replace Business Brokers, Valuers and in some cases accountants. To be fair information could also be outdated and not relevant so be sure to manage the “white noise”.
Write A Great Advertisement For Your Listing.
This step is when you go LIVE and your business is offered for sale. If the advert and the images are on point your are far more likely to get enquiry. Without enquiry you will not sell your business.
The difference between a professional well considered advert and an emotional “please buy my business” advert can be all the difference to finding the best buyer in the shortest time.
A well written advert will cover what is for sale, what is included, and why it is a great business and do so without saying what the business name and location is therefore protecting confidentiality. Revenue and profitability if a highlight are key drivers that buyers respond well to.
Websites like BusinessSales will help you with an innovative way to list and showcase your business to attract better buyers plus provide the confidentiality process for you. Business brokers who have your listing on this platform will write and prepare your listing professionally using their depth of experience and can manage the confidentiality process on your behalf.
Buyers may look at several adverts and businesses, so you need your advert to be compelling and have buyers wanting to enquire and find out more.
If you are unsure that you will be able to get the best price for your business and handle the sale, then using an experienced business broker is definitely a sound strategy. BusinessSales has a no cost service for sellers where we can have three business brokers contact you to have an obligation free chat about how they can assist you.
People might choose to sell privately to save on broker fee’s and commissions or because they have enough experience to manage the process but a good business broker will cover their costs in other areas which might be the price, terms/conditions, manage the process including dealing with all the enquiry through to negotiation. Their experience might be the difference keeping a deal together.
A good broker will help you from the outset with an appraisal, how and what is needed to prepare for sale, prepare marketing and an information memorandum and understand what else might buyers and their advisors might need or want through the course of discovery.
How to engage with buyers
Buyers will only start to connect with the business once they know who you are, where you are located and what they have read in the advert and perhaps now what they see on your website and social media.
They will reach out if interested looking for more information. They are asking for you or the broker to present the business to them and provide the next level of information. What is so very important is that the advert, the conversations and what they hear and learn from the business broker and seller must be consistent.
Buyers will be looking at all the tangible information that comes with discovery and the overall process but also looking to trust and like the seller and/or appointed business broker.
The more you invest in getting to know the buyer the more you can share about the business as it might relate to their previous skills, experience and working life plus if you know why they are looking for a business like yours it helps align their wants and needs to the business.
A transparent and genuine relationship between the parties will make all the difference when it comes time to receive, manage and negotiate the sale price, terms and conditions.
The information and discovery process
Private sellers who have listed their business for sale will need to be prepared for buyers once an enquiry has occurred.
Business Brokers generally use an Information Memorandum, Business Summary or Business Overview to showcase all the general aspects of the business. This is usually offered after a confidentiality agreement has been completed by the buyer.
The level of information provided will depend on the business size, type and scale. This document is designed to provide a good amount of information but not details that could be sensitive in nature like names and contacts of staff, suppliers, customers etc
A private seller who has not done and information memorandum before may not get this exercise right where a broker has a depth of experience and understanding of what buyers want and need before proceeding further.
Whatever format used it should contain the basics such as; the history and profile of the business, an overview of staff including owners, lease and property details, plant and equipment included in the sale and the approximate value, 3 years financials (Profit and loss statements) and year to date, the value of stock at cost, the strengths and opportunities of the business and any qualifications, licences or considerations that are required and in some cases much more again depending on the industry and business.
Whilst the advertising may attract an initial enquiry this document is often the first point of reference where the buyer learns the name and location of your business, what is for sale and why they should buy your business.
You must now be ready to showcase your business in much more detail and really highlight the business strengths, features and benefits. The financials, the history, the team, the assets, the lifestyle, the growth and opportunity etc must be conveyed transparently and in a manner that will be confirmed when the buyer progresses to an inspection or meeting with the owner.
You can prepare this document or seek assistance from a professional or your appointed broker will do this for you!
If you have a business that has been purposefully systemised and documented buyers will in most cases respond favourably. Systems provide clarity, transparency and efficiencies within a business (this is one of the reasons Franchises have been such a successful model over the years) A business with operations manual, induction and training manuals mean there is consistency and other benefits such as accountability and responsibility.
Having your business in order with all things book keeping, accounting, payroll, systems, filing and invoicing, contracts and agreements etc will all add to the look and feel of the professionalism of the business and provide confidence to a buyer.
Buyers will not likely invest time and money (with their accountant) until they have really understood this step, perhaps asked for some general questions and in some cases come to inspect the business and meet the owner. Once a buyer starts engaging with their accountant or even talking to their bank you should feel like the buyer is more serious than not.
Negotiation and Getting the Deal Done
There will come a point where the buyer has received all the tangible information, asked questions, had an inspection or two and their accountant has review all the financials. It is always good to know if the buyer has finance arranged or is on top of this process and the sooner the better. Getting finance might be achievable but the process can be time consuming and challenging.
Once a buyer has pre-approval with finance you should be asking if they are ready to make an offer and once this is received you can make a determination as to what your response might be. It maybe very fair and easy to progress but sometimes this is the first time where it becomes clear that the buyer and seller are wanting different things as it might relate to the price, terms and conditions.
Business Brokers are independent to the seller and the buyer so they can say and do things from a non-emotive or self-interest position. Business brokers may have other buyers to work with or provide support and defend the asking price or bridge the differences to help both parties achieve a great mutually beneficial outcome.
Either way the process from this point needs to be fluent to ensure time doesn’t kill the deal. Solicitors should be notified and promptly provided all the information required so they can prepare a contract of sale and all that might go with it. If property is being sold with the business this may involve a business of sale contract, a freehold property contract and a lease.
Once contracts are issued generally 1-3 weeks late both parties should have reached un-conditional status where both parties are bound by the contract. This can vary depending on the business, complexity of variables and finance. If training and transition is part of the deal this usually happens as pre or post settlement (where money exchanges and keys are handed over etc).
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.