22 Apr Important Tips on How To Sell Your Company.
While developing an idea to start a business takes time, selling that same business can be just as complicated. As an entrepreneur, it’s not easy to think about selling your business, but knowing when the time is right, and planning ahead of time, will improve your chances of getting the best price and outcome.
Whether you profit will depend on the reason for the sale, the timing of the sale, the value of the business and how you go about the sales process. The business sale will also require much of your time and, once the business is sold, you’ll need to determine what to do with the profit.
So the question now is, should you sell your business? Here are 7 topics to help you build a solid plan and make the negotiations around the sale of your business a success.
Know why you want to sell your business
Potential buyers are going to have a lot of questions. They’ll want to know the extent of the business, the history of the business, the valuation of the business, and many other details.
However, the first question that will always come up is: Why are you selling your business?
The way in which you answer this question can make or break the deal. You have to know exactly why you’re selling your business and be able to explain this clearly.
Prepare well in advance for the sale
Selling a company should never be a spur-of-the-moment decision. It takes time and effort to prepare for the sale of a business – don’t think you can start putting things together the month before you sell.
Selling a business requires an understanding of the value and worth of the business. Gather your financial statements and tax returns from as far back as possible and review them with an accountant.
Having clear books and records helps a buyer with due diligence, so make sure you can produce a number of years’ of tax returns that are accurate and show maximum profitability, so you can get the best price for your business.
Develop lists of equipment and stock that are being sold with the business, as well as of contacts related to sales transactions and supplies, and have all relevant paperwork, such as your property lease or title documents, ready.
Use this material to put together an information pack for financially qualified potential buyers. Include an overview of the history of the business and how it is conducted.
Finally, make sure your business is presentable for sale – before you go to market, fix or replace any areas of the business or equipment that are broken or dilapidated.
Never go it alone
It’s important to figure out who you need on your team to help you through the sales process and ensure you get the best price for your business. Remember, the buyer is likely to have a good team to go over your business, so you should also have an equally good team on your side.
You’ll likely need an accountant, an appraiser, an attorney, and a business broker. You’ll also need a personal accountant and attorney to help you with your personal financial planning once you receive the proceeds from the sale of your business.
A broker is especially valuable in the latter stages of the sales process to help with negotiation, due diligence, and the final sale. Granted, selling the business yourself allows you to save money and avoid paying a broker’s commission. And a self-sale is also the best route when the sale is to a trusted family member or current employee. However, in other circumstances, a broker can help free up time for you to keep the business up and running, keep the sale quiet and get the highest price (because the broker will want to maximize his or her commission).
Your lawyer will be able to discuss with you the legal implications and advise you on these before you sign the sale agreement. Your lawyer will incorporate proper clauses into the agreement to safeguard your contractual rights and carry out due diligence to ensure that your risk is mitigated to the lowest level possible.
Know the value of your business
Even if you have a rough idea of what your business is worth, this is only a number to guide you in your consideration. You’ll still need to get an accurate valuation to make sure you don’t price it too high or too low.
Contact a business appraiser to get a valuation. The appraiser will draw up a detailed explanation of the business’s worth. This document will bring credibility to the asking price and can serve as a gauge for your listing price.
You may need multiple valuations depending on the nature of the business, the potential buyer(s) and the deal that is being proposed.
Determine whether it’s the right time to sell your business
What’s the ‘perfect time’? There’s no easy answer to this question because each business is different and timing depends a lot on the ebb and flow of the particular industry and the economy as a whole. Another reason why it’s important to get professional advice and help.
Many people wait until their business is on the decline to sell. That’s the exact opposite of what you should do. The time to sell is when your business is at the top of its game!
Before selling, also, look at current market conditions for your industry. Changing technology and other business trends can sometimes prove too much for some businesses. Keep your eyes trained a few years ahead, and if you don’t believe you can keep up with changing technology and other trends, then sell before your failure to adapt catches up with you.
Find a buyer
The sale of a business may take many months – in some cases even years – as finding the right buyer can often be a challenge. However, once you have prospective buyers, keep the process moving along:
• Get two to three potential buyers just in case the initial deal falters.
• Stay in contact with the potential buyers.
• Allow some room to negotiate, but stand firm on a price that is reasonable and aligned to the true worth of the business.
• Put any agreements in writing. Potential buyers should sign a non-disclosure / confidentiality agreement to protect your information.
• The buyer may also require you to sign a non-compete agreement, in which you agree to not start a new, competing business that would entice your former customers away from your old business.
Decide what to do with the profits
Selling a business is a big deal. It involves a lot of time and will radically change your life. Hopefully, you’ll also receive a good sum of money from the sale of your business. Large sums of money will force you to decide what you’re going to do with your life – and the money.
So before you even think about selling, think about your goals for your future. And once you’ve sold your business, take some time (at least a few months) before spending the profits from the sale.
Use this time to talk to your accountant and lawyer to create a plan of your financial goals, and learn about any tax consequences associated with your sudden wealth. Consider how you might invest the money and focus on long-term benefits, such as getting out of debt and saving for retirement.
Your lawyer in Auckland at Quay Law is fully qualified to help you achieve the best outcomes when it comes to selling you business, and ensuring that your legal risk is kept to a minimum.
If you’re considering the sale of your business, contact your local lawyer at Quay law today to discuss your options.Get In Touch with your Auckland law firm