There will come a point when a business owner wishes to realise their investment. Whether for personal or financial reasons there are steps all owners can take to prepare their business for sale; to minimise tax, transactional costs and stress, and maximise the return.
Grooming your business for sale can streamline the sale process. Even if the sale doesn’t proceed, you will have a better understanding of the assets that you hold and allow you to consider alternative succession plans. Below are some fundamental matters to ask yourself when selling your business.
Consider the sale from the buyer’s perspective. If you were going to buy the business what would you want to know?
First, understand what you are selling. This may seem obvious; you’re selling your café, what more is there? Using the café as the example, there are a number of assets that may be included or excluded from the sale:
- The business name;
- The premises; the Lease;
- Intellectual property rights;
- Plant and Equipment; and
- Website and Social Media Accounts.
Get a clear asset register, have access to your depreciation register, know what is encumbered, leased or hired. Prepare your Landlord.
Understand these obligations early so you know what “hoops” you need to jump through to sell.
Second, make yourself redundant – the buyer wants to know that the business can run effectively without you, otherwise the business’ value is likely wrapped up in your ongoing employment.
Third, take practical steps now (even if you aren’t sure if you want to sell):
- understand what value your assets have (asset registers should include licences and intellectual property rights);
- document your procedures or policies (manuals about how the business operates will assist the new buyer);
- update all maintenance registers;
- maintain a list of your suppliers with copies of the relevant contracts or terms;
- make sure your accounts and financial statements are up to date (these can provide you and the buyer with a true understanding of the value of the business); and
- know where you have given personal guarantees.
Be clear that any offer or discussions are “subject to contract” so you aren’t bound by an ill-informed handshake deal. Be careful with all representations you make. Before releasing information, consider a Non-Disclosure Agreement. In this path a business broker can be very instructive.
Finally, seeking financial and legal advice early will assist structure the sale to minimise tax and to create a plan.