Getting the best price and sale outcome starts well before you get the initial offer from potential buyers.
The way you write the advert, the way you speak and relate with any buyers, the way information for the sales process is presented, the quality of any inspections and meetings and the timely manner all the steps take can all contribute to a successful business sale agreement which should include not just the price but also the terms which are just as important (if not more important).
There are many steps to negotiating the sale of your business
- Know The Buyer
- Closing The Deal
Preparing a business for sale with thought and consideration can be the most important part of setting your business up for a successful sale. Putting in place the systems and structures to demonstrate stability and consistency in your revenue and/or profitability can take years. But even if you don’t have years to improve your financial results you should prepare adjusted financial statements for the buyer.
These financial records should show the business performance excluding any one off expenses and income to show the typical performance of your business. Your accountant should be able to help you with this.
Covering everything you could and/or should do to prepare comes down to working with your accountant and solicitor where appropriate and having all the areas of your business ready (such as your profit and loss statements and tangible assets and intangible asset lists). Buyers don’t know your business as well as you do, even if they do know your industry. They will be nervous and will be looking for information that give them the clarity and confidence buying your business is not a mistake.
Many sellers ask when is the best time for selling my business?
The timing of selling a business can have a lot to do with the business and how well it is operating, how well the last year two or three has performed financially, how stable the team and the industry is, etc.
When it comes down to it, the best time to sell is when the business is in growth, financially strong and consistent and there are no “issues” that will be showstoppers for potential buyers.
If your business is making the owner good returns that is a great starting point as a potential buyer will often be looking for a replacement wage and also an acceptable return on the asking price. Some businesses are seasonal or manage cycles so timing may on a case-by-case basis need more thought. Is it easier to find a buyer in the highs or lows of trade? When does the business need large injections of capital and would this affect a buyer?
The time you list may also have no bearing on when you find your buyer. It may take 2 weeks or 5 months to find a buyer so really it comes down to considering many things, make a calculated decision but when you are ready is often the default position. Make sure you are in a good place and are not forced to sell. Selling when you still enjoy or even have passion for your business can have a significant impact on buyer engagement and have them feeling like it’s a good thing!
Marketing can best be described as “everything you do” and also “everything you don’t do”.
Marketing is both the tangible and intangible aspects of what a buyer will learn, see and discover about your business. If you operate from a physical site the visual impact, cleanliness and organisation can set the tone as can the exterior signage, car parking and access.
The way your business is marketed online with a professional concise and confidential advert can induce good quality enquiries or little to no enquiries from buyers. The way you provide further information through a well-presented and detailed information memorandum that covers all the key areas of the business is often an important way for buyers to review and consider what is for sale, where is the value, where is the opportunity and so on.
Marketing can extend to the other areas of the business you don’t necessarily control such as online reviews, the atmosphere and energy your business creates for customers, the way staff handle themselves, the look and feel of your website etc.
The more confident they are the more likely they will make a strong offer. Missing pieces of the puzzle, things they expect you to share that you can’t or won’t and time delays can kill your business sale.
Among the best tips on selling a business is full disclosure. Every business has weaknesses or opportunities for improvements, trying to cover them up doesn’t work. Remember the buyer will almost certainly get advice from their accountant and lawyer. If you’ve tried to hide something which comes out later it makes the buyer thing “what else are they hiding” and can kill your business sale.
The reality is many sellers evade and dismiss the weaknesses or issues of their business almost in a way of being embarrassed or feeling like a buyer will run away if they find out.
Get on the front foot and share these issues in your business history as weaknesses and problems. For the right buyer, these are possibly their strengths. If you get to know your buyer well and find out more about their skills and experience, you may even softly sell the notion that your weaknesses are their opportunity for growth in the business.
Your disclosure of such “issues” upfront will be seen as transparent and provide the buyer (and potential new owner) with much more confidence about the future profits to expect. Your business should be priced according to the risk or reward and where the value lies.
A good business broker can help you with this.
When you have an inspection, be yourself, buyers love an honest, authentic and genuine business owner.
Know The Buyer
Getting to know the buyer is an extension of the above process. Transparency needs to be a two-way process and usually exists once each party is getting to know the other and is comfortable. However, getting to know the buyer goes a little deeper and learning more about the buyer can help the broker or the seller with the process.
Understanding what the buyer’s history, skills and experience have been will mean you can share the aspects of the business they can relate to. This builds instant repour and the buyer can start to relate to the business and feel more comfortable. Also, any weaknesses in the business may be identified as strengths for the buyer where their previous employment or skills can be adapted into the business and help with systems, marketing, sales, technology etc
Getting to know the buyer extends well past their credentials and be sure to avoid the interview style and approach to this and aim for a more organic and natural discussion. People can also connect by discussing where they live, family, other interests and even wat they want out of the business (lifestyle, income, achievement etc) and the timing around when this might happen.
If this process is managed well and communications flowing between the parties the deal will become more of a win-win scenario. If the buyer doesn’t connect with the seller, doesn’t relate or care then it is much easier to provide a lower offer or with less favourable terms. By knowing the buyer the seller will also be able to assess the fairness of the offer and be able to equally counter offer with the same level of consideration and respect.
When people like each other the negotiation and the result is likely to be thoughtful from both parties.
Closing The Deal
Don’t be afraid to ask the buyer at any point you think is reasonable for a commitment to feedback or an offer. If they have all the information and finance is the last step seek a commitment or even an offer subject to finance and keep communicating.
The first offer you get from the buyer will be a heads of agreement (also known as a non-binding indicative offer or letter of intent). This should outline the key terms of the buyers offer and will be the basis of the sale contract which your solicitor will create for you.
You can get a heads of agreement template from LawPath here.
Using a Heads of Agreement allows you and the buyer to confirm your are both happy with the main parts of the deal before the buyer commences their formal due diligence and you both incur legal fees having contracts drafted.
If you are using a business broker they will manage this process for you.
Selling your business can be tough, but so are you.
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