Selling a business is a complex, time-consuming, and daunting task, so it’s vital that you have everything well-prepared. Whether you enlist the help of professionals or handle it yourself, there are several key things you need to know.
Whether you are looking to sell a small business, a major franchise business, or anything in between, this article outlines the steps you must take throughout the sales process.
How to sell a business in 7 steps
Selling a business is a major decision and should never be taken lightly. Not only have you invested time and money into growing your idea to where it stands now, but the decision to sell will also have an impact on customers, suppliers, and employees.
To help you get ready to sell your business we’ve broken down the process into a few bite-sized chunks to make explaining it as straightforward as possible. Let’s explore the following 7 steps:
1. Prepare your business for sale
If possible, you should prepare for the sale at least a year or two in advance. Your circumstances may mean that this is not possible and that a quick sale is essential, in which case you may be accepting a lower price than you envisioned. If you can take the time to make preparations this gives you a chance to position the company for a seamless transition and set things up well for the buyer.
During this time you should:
- Maintain accurate financial records.
- Refine the company structure to minimise its reliance on you.
- Build a strong customer database.
- Maximise profits.
- Make a business plan for the next 2 to 5 years.
- Equip employees for the long term.
- Refine health and safety protocols.
- Create a list of assets that are included in the sale.
- Clean and upgrade any equipment or buildings.
The better prepared the company is for the future, the more appealing it is to prospective buyers. To make the most of this, it is worth preparing an information pack to give each qualified buyer. This should include a business summary, an operating manual and the key features/unique selling propositions (USPs) of the business.
You may even choose to include a succession plan or an outline of how responsibilities will be transferred. This will show the buyer that the transition into ownership will be smooth and simple.
2. Enlist the help of professionals
You should always consider enlisting the help of a lawyer, accountant, and broker/commercial real estate agent before you get too far down the process of selling your business.
While you can sell the company yourself, taking on that responsibility is often more taxing than it’s worth – especially because you need to focus on day-to-day business operations. You may also leave ‘money on the table’ when it comes to the business’s sale, or you may be overpricing and missing out on having multiple competitive bidders.
It’s often the most effective route to hire industry experts who can attract the right buyers, handle your finances, and negotiate with buyers effectively. That way you can keep the business running while the offers roll in. These professionals will often make their costs back, sometimes over and above what you would expect. They do this by:
- Enabling you to focus on running the business.
- Pricing the business in accordance with the local market and buyer demands.
- Avoiding expensive mistakes during the process.
- Increasing the awareness of your business’s listing through their nurtured databases.
- Advising on where you need to spend, and where you can save before the sale.
3. Get a business valuation or appraisal
Your next step is to get a valuation from a valuer or an appraisal from a business broker, which your agent can handle for you. The valuation will ensure your business is listed at the most strategic price – not too high and not too low. The appraiser will send you a detailed report outlining the company’s worth, including its current market value. This document will determine the asking price and can bring credibility to the brand.
If you have enough time before listing your business you can put extra effort into increasing this valuation if it’s lower than you had hoped. This may include upgrading your IT infrastructure, hiring a business coach to develop a business plan, or incentivising sales among the team to boost revenue.
4. Attract a buyer
Now that you know the value of your business, it’s time to list it and market it to potential buyers. If you have an agent, they will manage this for you by creating a marketing plan, preparing a list of relevant assets, and advertising on the most appropriate communication channels.
Once a buyer expresses interest, your agent will discuss the specifics of the business and give them the information pack you and the agent prepared earlier. This is the buyer’s opportunity to ask questions and assess if the company aligns with their needs. If they are serious about the purchase, they will organise their finances at the same time.
5. Negotiate the deal
Now that a buyer (or buyers) is actively interested in the business and has qualified for financing, it’s time to close the deal. The buyer will make an offer in the form of a Sale and Purchase Agreement and you can either accept it or negotiate to achieve a better price. In some cases, you may want to include terms and conditions as well, such as when the handover period is, items that aren’t to be included or staged payments. Your agent will guide you through this step and mediate between you and the buyer where necessary.
Once you have accepted an offer and finalised the contract, your lawyers will draw up the transfer of ownership documentation. Once everything is signed and agreed upon by both you and the buyer, the buyer will then undertake additional due diligence to ensure the business has been accurately represented. Once due diligence has been completed the sale is then complete.
6. Produce a handover
When selling your business, it is common for owners to stay on for a certain amount of time as the new owner settles in. This handover period must be agreed on by both parties before the final transfer of ownership is complete. It’s sometimes a good idea so that valuable operating knowledge isn’t lost and customers aren’t negatively impacted by the transfer of ownership.
This transitional period gives the buyer reassurance and support to assume ownership in a practical, day-to-day sense. To simplify matters, it is recommended that you produce a comprehensive handover document outlining everything the owner needs to know. As they get to know the business, they can refer to this and if needed, contact you for additional information.
Your handover could include:
- Industry contacts.
- Leases that are transferred with the business.
- Routine maintenance tasks to schedule and budget for.
- Your payroll processes.
- When you intend to step back completely.
- Employee information.
If you do want to leave straight after the sale, you must be very clear about it early on so prospective buyers can plan ahead.
7. Planning your next move
When everything is said and done, it’s time for you to step back and look ahead to your next plan. While it can be tempting to launch into a new venture or spend the sale profits, take your time to consider your options.
It’s recommended that you take at least a few months after the sale to create a plan outlining your financial goals and learn about potential tax implications. To avoid tax on “sudden wealth”, speak to a financial advisor and determine the most suitable investments for long-term benefit.
The bottom line: Get professional support
Selling your business is a time-consuming and challenging undertaking, with various rules, protocols, and legalities to prepare for. On top of that, it can also be an emotionally draining process, especially since you’ve invested so much time, resources, and energy into the company.
To minimise stress and be confident that you end up with the most advantageous deal, enlisting the help of experienced professionals is crucial. At McDonald Real Estate, our commercial team can guide you through the entire sale, with all the straightforward advice and market expertise you’ll need.
Your agent will manage everything for you, including:
- A business appraisal.
- Communications with accountants and lawyers.
- A marketing strategy for the business.
- Negotiating with buyers.
- Processing any paperwork.
From initial preparations through to the final handover, we can guarantee the transition is smooth and rewarding.
