What are the essential points to consider when thinking about selling your business if you’ve been approached?
Consider the following major recommendations:
It does not matter if you have one or a number of interested parties, these initial actions are critical in getting the best outcome:
- Advise the buyer that you are seeking professional assistance to better prepare for the sale and to facilitate the process. Let them know that you are awaiting further advice before going ahead with any more discussions. This shows that you are serious about the negotiations and will only proceed if it is conducted professionally.
- Sign an engagement agreement with a specialist business sale company experienced in mergers and acquisitions, including financial reporting and different share solutions. It is important you choose the right person that is knowledgeable in more than just the sale process.
- Together with your accountant and agent, analyse your business to determine the market. This includes evaluating your business’ financial and systems strengths, financial and operational performance and any opportunities of the business.
- Prepare an Information Memorandum containing “normalised” financials, excluding personal use items or income, assuming you are putting the sale on the broader market.
- Review the working capital by removing excess assets from the balance sheet of business before the sale.
- Provide a price estimate and be sure it meets your expectation and requirements.
- Focus carefully on the information flow and ensure that trade secrets, pricing structures, key clients and staff are kept secret until the buyer is fully committed and bound by an unconditional contract. Ensure you get a confidentiality deed signed first and have contingency plans in plan to exit at any stage of the process, if the buyer proves unsuitable during negotiations.
- Get specialist tax advice for your personal circumstances to ensure any CGT issues are anticipated and dealt with before undertaking the transaction. This is more so for larger, more complex transactions, including existing business structure and tax history, to minimise the assessable tax from the transaction.
- Do not narrow down on just one buyer, at least without strict timeframes and exit clauses in place, so that you can still explore alternative options without committing too much time, costs, and professional engagement. Maintain the right to terminate within your discretion if the buyer becomes difficult on key points that may reduce the value of your outcome.
- Do not allow the buyer to dictate the time frames without an end date for a mutual right to end the negotiations. Retain the leverage to exit if the sale process loses momentum.
- Exercise great care and discretion when sharing sensitive information about your business by not giving too much or too little information at each stage, including the due diligence period.
You may only get one opportunity to maximise on the capital gain created in your business. The best outcomes can take years in the making, and it does take early professional advice to prepare for a sale.
Be sure to invest the time and money to prepare your business for a sale, targeting the right category of buyer with the optimum outcome. Often sellers ignore a slower sale process over a longer time frame, such as a 3 year period, when they can give the buyers’ financier greater comfort by a post-sale consultancy or retain a shareholding. This ensures a smoother transition that protects the buyer and the seller from loss of key employees, loss of customers and breakdown of the systems created.
If both parties have greater assurance regarding a continuation of profit then there is a greater likelihood of a better class of buyer that is better financed for a higher sale price.
Ask us now how we can assist you to get your business “sale fit” and ready for your retirement. Get your free checklist by emailing us of firstname.lastname@example.org