Selling Your Small Business: Seven Tips for Success




 

Every small business owner knows the time and energy it takes to get a business off the ground. 

So, if you are thinking of selling, you will want to know that you are going to get the best return for all that investment. 

The key is to manage the sale process carefully.

In this article, we will look at seven top tips to guide you through the process.


Tip One - plan ahead

Is selling your business part of your exit strategy (the seeing the return of your investment)?

If so, then finding a buyer and going through the sale process can take some time. 

Enlist the help of your accountant and solicitor to help you plan. They can advise in the best way to approach a potential sale from a legal, financial, and taxation perspective. 

Start early and plan ahead. This way you will be less likely to accept an offer that is below what your business might be worth.


Tip Two – find a buyer

There are different ways to find a buyer. 

You could try word of mouth among your own network – whether that is friends, family, customers, suppliers, employees, or even a competitor.  

Alternatively, you can engage a broker. 

Get recommendations and shop around to find somebody you can trust. 

A broker with experience in your industry can also help you with insights into market trends and the best sales strategy to adopt. 

Do not be lured by the promise of a big price though (you have already discussed those expectations with your accountant).

Make sure you understand all the details of the broker’s terms of engagement, especially when and how much they will be paid. 


Tip Three - get organised

Decide on how the sale will be structured and what will be included. 

Will it be a sale of the company, or of the business assets? Are there any excluded assets? Does the sale include Goodwill, the business name and any intellectual property? Is there a lease or freehold title(s) to be transferred? Are there any ‘old’ securities that require discharging that may delay settlement?

A buyer of your business will want to look at your accounts and to investigate how your business has been run (a process called “due diligence”). 

By getting organised, you can make sure they will like what they find:

  • Make sure all your business administration and corporate records are complete and up to date.
  • Have you renewed your lease, or negotiated a new lease for enough time to give a purchaser piece of mind about their tenure of the business premises.
  • If your business is involved in any litigation, consider if you can settle or end the dispute before the sale process starts as this may need to be disclosed with prospective purchasers.
  • If you have not already, consider putting in place fixed-term contracts with key suppliers and customers. Make sure these contain an assignment clause (so you can transfer them to a future buyer) and that a change of control does not trigger termination.

In most instances, you should insist on a confidentiality agreement prior to allowing a purchaser to peak at your business and financial records to protect commercially sensitive information about your business from becoming public knowledge.

If you are selling in Victoria and the value of your business is less than $350,000.00, then you will be required to provide your prospective seller with a section 52 trading statement.

Remember that any information you provide about the business must be true and accurate. And if you try to mislead the buyer, that can lead to litigation that can drag on for months after the sale.


Tip Four – negotiation needs preparation

If you have found a buyer who wants to go ahead with the purchase, you will need to negotiate the key terms of the deal. 

The key terms include:

  • The sale price for the business and what the maximum stock value is required.
  • How much of a deposit might be payable.
  • Will the buyer require finance to complete the purchase.
  • Will the parties require cross-guarantees on the sale.
  • The length of the settlement period (the period between exchange of contracts and completion of the sale).
  • Any transitional support that will be provided to help the buyer get started.
  • Are you willing to accept a restraint of trade.

Make sure you are prepared – and be clear about what you will accept and when you are willing to ‘walk-away’ from that particular buyer.


Tip Five – check the contract

There are no ‘hard-and-fast’ rules as to who prepares the sales contract.

Usually, it is customary for the Vendor to prepare the contract. After all you are selling your property so it should be on terms satisfactory to you.

The law does seek to protect ownership rights. It is one thing to sell your business – but a bad contract could put it all at risk.

Remember if you give up your legal protections, then expect your purchaser to draft terms of the sale that are more weighted in their favour.

The key is to have a contract prepared by a solicitor who is experienced in business sales.

Issues to check in the contract include:

  • The Vendor and the purchasing entity are correctly identified including ACN and ABN (where relevant).
  • All assets included in the sale are listed as well as those that are excluded. Details of any serial numbers, or other identifiers, on plant and equipment should also be included.
  • All the negotiated key terms are properly included (see tip four above).
  • You are confident that all the ‘warranties’ are accurate. Warranties are promises that you make about the way the business has been run. Remember the buyer may seek to rely on these.
  • Any other special conditions negotiated between the parties.

Advice from your solicitor and your accountant should also ensure that any tax liabilities arising on the sale are at a minimum before ‘you sign on the dotted line’.

Whatever you do, DO NOT sign up to a contract and then go on holiday the next day. There will still be some preparatory work to do before closing the deal and plenty of time for that well deserved trip after you have finalised the business.


Tip Six – look after employees

For most businesses, a happy workforce is vital to success. 

But a change of ownership can be an unsettling time for employees – which also risks morale and business productivity (and at worst attrition by employees). 

Make sure you communicate what is happening, your reasons for the sale and what it means for your staff. Will they be transferred to the new buyer, or should they be looking for a new job?

Employees have rights to notice if you are terminating their employment or to have their entitlements recognised if they are transferring. 

Whatever the plans, get expert advice on your legal obligations towards employees, so you can include this in your strategy for the sale.


Tip Seven – close the deal

Congratulations! Your business is sold and the money is in the bank. 

Before heading on that holiday there will be important follow-up tasks to complete following settlement. 

Depending on your reasons for selling these could include: 

  • Prepare any final tax returns and business activity statements. 
  • Cancelling your ABN.
  • Cancelling any subscriptions, services or contracts that were not transferred in the sale.

Your accountant may assist you with some of these tasks.


Getting help along the way

A business sale can be time-consuming, emotional and put owners under a lot of stress. 

Every seller of a business needs professional help. 

At Holcroft Lawyers, our team is experienced in helping clients manage the sale process efficiently and reducing the risk throughout the process. 

Please get in touch if we can help you in any way with your first step towards selling your business.

 
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