Introduction to Selling a Business
Selling a business can seem like a daunting task, but we offer a variety of ways to make it easier. In this section, we’ll go over some important preparatory steps and tips, so you know what you’re getting into.
The aspects of a business you can sell (or not sell)
Selling a business doesn’t have to be all or nothing. You can choose which parts of your business you want to sell or keep. You can, for example, sell only a percentage of your company (usually with stock), which is called recapitalisation. Or you could sell specific divisions of your company that present more value to a buyer.
Ultimately, you need to decide which assets you, the business owner, want to put up for sale. You could put up all assets or just a portion. You could also sell:
- Your business’ name.
- Intellectual property.
- Physical property, such as real estate.
Why do you need a checklist for selling your business?
Having a plan is always better than not having one. It ensures the smoothest possible negotiation and transition and helps both parties walk away satisfied.
Selling a business can be a difficult process if you are unprepared. There are many items to keep track of: decisions you need to make, compiling documents, how to value your business, and so much more.
The difference between being prepared and being unprepared can determine the sale's success.
How long does it take to sell a business?
Generally, selling a business takes six to nine months from start to finish. However, there are many variables that can affect that time period. For example, a downturn in the market can prolong the process, and the particular sector your business is in will also affect the amount of time it takes.
Preparation Steps for Selling a Business
The first step to preparing a business for sale is to understand why you’re selling in the first place. There are some good reasons to sell a business, and there are also some bad ones. Let’s go over the legitimate reasons:
- Investors are interested in buying your company. This often applies to companies in the technology industry. If you have particularly valuable intellectual property as a part of your business, investors may be keen to buy out your company for a large sum of money. Alternatively, you may simply be doing so well that people want in on having a piece of your business. Whatever the reason, if it looks like there’s a high demand for your business, it could be a lucrative opportunity.
- Things aren’t looking good. If you see any looming threats on the horizon, you may want to sell to protect your financial interests. This might include declining profits and performance or a poor outlook in the face of overwhelming competition or unfavourable market trends.
- You feel that you’re not the best person to own your business. It’s possible your business has grown past the point that you feel you can manage it competently. If you don’t feel capable enough to adapt to new business environments, it may be a good time to hand the reins over.
- It’s no longer rewarding. Maybe you’ve simply grown bored running your company and want to do something different.
How to perform a business valuation
Valuing your business on your own requires a lot of considerations, but there are a few methods you can use, according to the Australian government:
- Return on investment (ROI) means your business value is based on its net profit.
- Net worth means calculating the difference in the total value of your assets and comparing that to its liabilities. This can include both tangible and intangible assets.
- Looking at the market to see what a similar business often goes for.
You can also get a quick estimate in about five minutes with our Quick Valuation Tool.
Using a business broker vs. selling privately
When selling your business, you have the option of using a broker. There are pros and cons to this strategy:
Pros:
- You can focus on running your business instead of taking up all your time selling it.
- You have access to professional advice.
- Wider markets are available to brokers.
- A competent broker will have your best interests in mind so you can get the highest possible purchase price.
Cons:
- Brokers charge fees for their services.
- Loss of control of the process — if you’re used to being in charge of your own affairs, this might put you off.
- Brokers get their fee when you sell, meaning they might pressure you to take a bad offer.
- Not all brokers are competent. You’ll need to perform due diligence when searching for one.
We make finding a broker easy with our SellerMart service. With this, you can quickly find a broker who will help sell your business. One necessary step, whether you’re using a broker or not, is to list your business for sale online.
Understanding taxes and legal issues
The taxes and legal issues involved are complex and could take up several articles. But one of the most important taxes to understand is capital gains tax (CGT).
CGT is something you report on your income tax return form whenever you sell an asset. The higher the value of the asset you sell, the higher the tax.
Take, for example, an asset you purchased for $10,000. At the time of sale, it’s worth $30,000. This means you owe tax on the $20,000 difference.
However, there is a 50% CGT discount that applies under two circumstances:
- You’ve owned the asset for at least one year and one day.
- For tax purposes, you reside in Australia.
This means that assets you’ve owned for less than a year are taxed higher than assets you’ve owned for at least one year.
Find out more: Ready to sell your business? Advertise your business for sale.
How to Find the Right Buyer and Negotiate the Sale
The right buyer has your best interests in mind. This is a vague statement, as the best interests for someone selling a business can vary from person to person. Maybe you just want the highest possible purchase price, but you might also want your legacy to matter. It could be essential to you that your business succeeds in the future, and so you want someone you feel is capable of making that happen.
Make sure you understand what you want after your business is sold, and ensure that the other party can make it a reality.
How to negotiate the sale
Negotiating is a skill, but all successful negotiations have one thing in common: Both parties are satisfied in the end. Another way of putting this is that you meet both your and the potential buyer’s respective interests.
You should have an explicit understanding of the minimum you will accept. This might mean a certain sale price, or it could mean specific directions on what you want to happen to your company after it’s sold as part of a written agreement.
What is the due diligence process in business sales?
Another underlying aspect of any successful negotiation is mutual trust. Suppose one party starts doing things behind the other’s back, such as auditing employees or speaking to customers before it’s appropriate to do so — this can only hurt the potential sale of the business.
Above all, you should be able to say with certainty whether your prospective buyer’s intentions are what they say they are.
Be prepared to offer a whole lot of documentation to the other party. They’ll want to know exactly what your company is and how it’s doing. They’ll likely want information regarding sales targets, working capital, overheads and profit margins.
What will happen to your employees?
Your employees will undoubtedly want to know what will happen to them after the business sale. Be ready to negotiate terms with the buyer as to what the experience for the employees will be like. You may not be able to please everyone — it’s common for some employees to be let go as part of the transition — but you should at least be able to provide solid plans for employees that are staying and proper warnings for those who aren’t.
Find out more: Want to learn more negotiating tips? Read our negotiating a business guide for more insights.
How to Finalise the Sale
Once you’ve reached an agreement with the other party and the sale is finalised, you can start planning for your exit. This means:
- Getting your financial statements in order.
- Finalising any contracts.
- Transferring permits, licenses and leases.
- Completing your tax returns.
- Transferring (or cancelling) your business name.
- Planning a transition for the new business owners.
- Preparing a confidentiality agreement, if necessary.
Due diligence pays off here. The more prepared you are for the final parts of the sale — which primarily means having all the necessary documentation on hand — the more likely you will get an appropriate investment return.
Check out our extensive list of how-to guides if you still have specific questions. We also have seller’s advice you can browse.
When You’re Ready, List Your Business for Sale
After you’ve made the necessary preparations and have a solid idea of how selling your business will go, it’s time to put your business on the market. While we offer an extensive FAQ section to answer any questions you might have about selling your business, you can also opt for customised support and contact us.
When you’re ready to list your business for sale, do it with BusinessesForSale.com.
