Running your own business is hard work. As a business owner you have to wear a lot of hats and perform a multitude of duties. Planning, pricing your goods/services, marketing, negotiating with customers and suppliers are just a few of the tasks you will perform on a regular basis.
Given all the hard work a business owner puts in to effectively run their business they could be excused for hoping that it would be “easy” to sell their business. Unfortunately, this is not the case and those same skills that the owner has spent years developing are essential when it comes to selling your business.
The process of selling a business can be quite complex and some of the key items that you need to be aware of are as follows:
- Stage 1 – Planning
- Stage 2 – Price
- Stage 3 – Marketing
- Stage 4 – Due Diligence
- Stage 5 – Contract and Negotiation
- Stage 6 – Settlement and Exit
Below are considerations you should take into account for each stage of the process.
Stage 1 – Planning
- Be aware that the planning process may take 12 months or more
- Speak to your accountant and other financial/legal advisors if you are considering selling your business
- Understand what drives the value of your business and try to maximise profits prior to the business sale
- Are you just selling the business or the land and buildings as well (if applicable)
- Understand what your estimated tax position might be if you were to sell your business.
- It’s possible that you won’t have any tax to pay if you qualify for the CGT small business concessions
- Review your key arrangements with customers, suppliers and staff
- Are you going to sell the business on market or is there an opportunity to sell to a key employee?
Stage 2 – Price
- What price do you want from the sale of your business?
- How have you calculated the sale price and is it reasonable?
- Are you going to sell the shares in the company or the business assets? Discuss with your accountant what the difference is because it could be significant which will affect the price
Stage 3 – Marketing
- Are you going to sell the business yourself or engage a broker?
- If you engage a broker then choose them carefully
- Create a marketing proposal
- Be mindful of competitors trying to get a free look at your business posing as buyers
Stage 4 – Due Diligence
- An interested purchaser will want to conduct their own due diligence on your business
- An in-principle agreement should be reached prior to any diligence activities being conducted
- Due diligence can be a very involved and time consuming process; you will most likely require assistance from your accountant and lawyer
- Understand that due diligence can be a somewhat intrusive process whereby the purchaser wants to see everything related to your business
- Try to set a timeframe for the due diligence process
Stage 5 – Contract and Negotiation
- Instruct your legal advisor to draw up a sale contract
- All contract negotiations should be handled through your lawyer
- Review the terms of the sale and understand what is included in the contract
- Be aware of any deferred settlement or earnout rights included in the contract
- Be adaptable and willing to negotiate. The buying and selling of a business is a big decision for all parties involved and neither party will get 100% of what they want.
Stage 6 – Settlement and Exit
- Plan the transition to the new owner
- Manage expectations and communicate to existing employees, clients, financiers, suppliers and other stakeholders;
- Transfer of titles and business names (if applicable)
- Tax and compliance obligations – final tax lodgements and ATO client update;
As you can see there are a lot of items to consider when selling your business. The more you can plan and be prepared for what is involved with the sale of your business then hopefully the more you can ultimately receive for its sale.
If you require assistance or would like further information regarding planning for the sale of your business, please contact your Hall Chadwick QLD advisor.