Whether you’ve always intended to sell your business or you’ve recently made the decision to exit, there are several areas that will require your attention to ensure your business is in the best possible shape for a sale. This checklist for selling a business will cover:
- Getting your financials in order
- Reviewing contracts and agreements
- Presenting your business in the best light
- Valuing your business
- Finding buyers and closing the sale
1. Get your financials in order
The first thing on your checklist for selling your business is your company financials. You’ll need to show prospective buyers a range of financial data to help them decide on buying your company. Make sure you have the following information available for review and be prepared to answer your prospective buyer’s questions.
Financial statements and reports
Prepare a profit & loss account, balance sheet, and cash flow statement for the latest trading period and have comparative data from previous years available.
Revenue streams
Your potential buyers need to make good decisions on future income, so provide an analysis of your revenue streams, identifying any potential issues or opportunities.
Profit margins
Review your profit margins to ensure they are healthy and sustainable.
Expenses
Review your expenses to identify any areas for cost savings or efficiency improvements.
Debt and liabilities
Identify and quantify any debt or liabilities that may impact the sale and develop a plan to address them.
Accounts receivable
Provide information on your debtors, including any overdue or bad debts that may become uncollectible.
Inventory
Evaluate your inventory to determine its value and potential for sale, and identify any obsolete or slow-moving items.
Tax filings
Ensure that your tax filings are up-to-date and accurate and any necessary documentation and supporting materials are available for review.
Legal and regulatory compliance
Confirm that you are following all relevant laws and regulations and that any potential issues have been addressed.
2. Review contracts and agreements
Part of your preparation for selling your business is to do a thorough review of all contracts and agreements that are currently operational in your business. Provide data on contract values and renewal dates. When you are looking to exit your business, although you may find it uncomfortable, you will probably need to be open and transparent with prospective buyers for the following reasons:
Transparency and mitigating risk
Prospective buyers need to understand existing contractual relationships associated with the business, including agreements with customers, suppliers, vendors, and employees. By disclosing this information, you’ll enable buyers to assess any potential risks, obligations, or limitations tied to these contracts. When you are transparent, you build trust and reduce the likelihood of future disputes or legal issues arising from undisclosed contractual obligations.
Business valuation
Contracts and agreements can significantly impact the value of your business. Buyers consider the terms, duration, and transferability of contracts when evaluating the overall worth of the business. Favourable contracts with long-term commitments, reliable customers, and valuable supplier relationships can enhance the attractiveness, and therefore the value, of the business to a buyer. Conversely, unfavourable or short-term contracts may raise concerns or diminish the perceived value.
Business continuity
Understanding the contractual landscape is essential for ensuring business continuity after the sale. By providing information about contracts, you’ll enable buyers to assess how the transfer of ownership will affect ongoing obligations and relationships. Buyers need to evaluate the feasibility of continuing existing contracts or renegotiating terms with key stakeholders.
3. Make yourself attractive as possible
It’s vital to present your business in the best possible light to attract the right buyer. There are a few marketing strategies you can use that your competitors may not be leveraging which will help you stand out.
Industry awards
Winning local, national or even international industry awards, provided they are reputable ones, can be a great way to attract the attention of potential buyers. Given a choice between two very similar businesses, one of whom is multi-award winning, the chances are that potential buyers are likely to be more interested in the one with awards. Awards that commend your product or customer services are particularly useful ones to enter.
Case studies
Detailed case studies are proven marketing tools for businesses to help them attract new customers and investors. Case studies will also give prospective buyers persuasive information about exactly how your business benefits its clients.
PR
PR for your business, whether in local or national press, radio, magazines or TV can showcase your offering to a much larger audience helping you to attract the right buyer for your company.
4. Valuing Your Business
When it comes to valuing your business, ultimately, it’s only worth what someone is prepared to pay for it, and that may not be the same as what you think it’s worth. Value and sale are two different numbers, and as such, you may need to compromise, so aim for a realistic valuation to attract possible buyers.
Common valuation methods
Two of the most common ways to value a business are earnings-based valuation and asset-based valuation.
Earnings-based valuation
An earnings-based valuation looks at the present value of future cash flows- also known as the discounted cash flow (DCF). A potential buyer will assess whether the present value of future cash flows exceeds the initial investment. A major disadvantage of using DCF is that it uses estimates rather than actuals in the calculation. DCF is explained here in more detail.
Asset-based valuation
An asset-based valuation uses the fair market value of the company’s net assets. This means that intangible assets, investments, fixed assets, current assets, less short- and long-term liabilities are all included in the calculation of net assets. This method of valuation is relatively straightforward, but it does not consider earnings. Net assets per se may not be a good indicator of profitability.
Other valuation methods include:
- current market values
- return on investment
- business asset value
- cost of starting a business from scratch
- future profit of a business
- industry norms
Identify value drivers
Company valuations can be affected by many factors. Here are just a few that could impact your brand value:
- customer loyalty,
- proprietary technology,
- patents, trademarks and copyright,
- scalability,
- brand awareness,
- skilled and motivated employees, and
- access to capital.
Identify and leverage your brand’s value drivers to put your company in the best possible light when preparing to sell.
Address any value detractors
Value detractors are any issues or perceived issues within your business that could make it less attractive to a buyer. This could include things like:
- No clearly defined growth strategy,
- Poorly kept financial records,
- Ongoing legal disputes,
- Outdated technology,
- Patents expiring in the near future,
- Incomplete or non-existent policies and procedures documentation,
- Low levels of profitability compared with competitors,
- Lack of customer diversity/overreliance on a small number of customers, and
- Lack of management team/overreliance on the owner.
Addressing these issues will increase your business’ value making it much easier to convince a potential buyer that your business is a great investment for them.
5. Finding Buyers and Closing the Deal
Finding a buyer for your business can be time-consuming so you might wish to consider using a business broker or exiting specialist. They will understand the complexities of marketing a business for sale and closing the deal.
Develop a marketing strategy
Marketing a business for sale is different from marketing for ongoing customers. You’ll need to prepare your comprehensive business documentation in attractive and digestible packaging for your business sale. Finding the right buyer could mean advertising on specialist online marketplaces, networking with business professionals such as solicitors and accountants or employing a broker to manage the marketing of your business for sale.
Documentation for selling your business in Australia
Selling a business in Australia requires a lot of documentation to be in place. Here’s a list of the main documents you should have:
- Confirmation of the business trading name, ABN (Australian Business Number) and GST registration.
- Details (name, address, contact details) of the business owners and business structure.
- Financial statements and tax returns for the past three years.
- Lease information for premises/equipment or a property valuation if you are the owner.
- Business asset register.
- Franchise agreement (if applicable).
- Employment, contractor and freelancer contracts.
- Professional accreditations, licenses or certifications.
- Operational policies, procedures and process manuals.
- Information on marketing, loyalty programs, incentives, affiliates and promotions.
Negotiate and close the deal
You’re close to the end now but be sure to negotiate well on the terms of the sale so that you achieve the outcome you want. If you don’t feel properly equipped to handle the sale negotiations yourself, hire an expert in closing business sales who can manage this process for you.
Prepare for the best outcome
Preparing your business for sale can be a challenging and time-consuming process, at a time when you also need to keep a close eye on operational activities to ensure nothing goes off track. Using a professional who is an expert in handling business sales can prevent you from making costly errors or failing to get the right price for your business. You can contact me for a no-obligation chat about your business exit on 0448 000 010 or message me on LinkedIn.
