Selling your business

You wouldn’t sell your home without preparing for the open house, and your business is the same. You need to ensure both the business and your books are ready for inspection.

Think about the things the new buyer will want to know.

Are your accounts in order?

Debts and debtors – your books should clearly show the debts the business owes and any trade debtors.

Consistency of profits – can you demonstrate consistent profits over a number of years, and clearly demonstrate what drives profits?

Goodwill – can you demonstrate the value of the goodwill of the business - how much goodwill is in the name and how much is in your own personal reputation? If the goodwill is attached to you then it may not be worth anything when you leave.

Business plan – do you have a thorough business plan that shows the future potential?

Location – are your business premises in the ideal location and will the location go with the sale, either through ownership or a secure lease?

Infrastructure – is it easy for you to do business and easy for your customers to do business with you?

Suppliers - will the arrangements you currently have in place with suppliers remain for a new owner?

Physical assets – what goes with the business? In some cases it can be better to sell the physical assets and the business separately. For example, you may own the property and be able to get more for it as a potential development site than you can selling it as part of the business.

Working hours – how long do you really work in the business?

That last point may need more explanation. If the business can’t operate without you then your potential buyers are limited to people who want to work in the business. If you’ve established systems where the business can run with minimal day-to-day input from yourself, then it may be attractive to people looking at buying a business purely from an investment viewpoint.

What is your business worth?

One relatively simplistic method is to look at how long it would take the buyer to recoup their investment. This is known as a multiple of earnings. 

Let’s say a buyer wanted a 25% return on their investment and your business has shown a consistent profit of $250,000. This would deliver a valuation of $1 million based on a four year multiple ($250,000).

Small business owners are often people who love to be in control. But this may be one time when you should employ a specialist.

If you’re considering selling the business yourself then make sure you can manage the following:

• market the business
• set the right price
• run the business while also trying to sell the business
• negotiate the sale.

In the end the decision may come down to one simple question. Are you sure you can achieve a better return selling the business yourself than using a professional business broker?

If you decide to use a broker then choose that person carefully. Some areas to consider are:

• How much experience does the broker have in selling your type of business?
• Is the broker a member of the Australian Institute of Business Brokers?
• Get referrals from other people who have sold a business.
• Ensure a non-disclosure agreement is signed (while you’re getting ready to sell or trying to make the decision it’s best to keep your plans confidential, otherwise you may disrupt the business, customers and staff).

You shouldn’t enter formal negotiations to sell a business unless you’ve obtained suitable legal advice. Apart from the contract of sale there are a number of other areas to consider:

Signing a non-disclosure agreement - this is designed to prevent any prospective buyer from disclosing confidential information about the business. It’s also designed to stop a potential competitor making an enquiry about a business and then using the information for their own benefit.

It’s after this point that the buyer will be able to look at the details of books.

Negotiating – be up-front and honest. The new buyer may also factor in your relationship. If you can work together it makes the business a little more attractive because the buyer knows that you’re someone they can work with during the hand over.

Accepting an offer – check any reasonable restraints the buyer has placed on you (such as not opening up in competition around the corner) and also check:

• The settlement details, including the timing of the payment or payments.
• Any training or assistance you will be asked to provide.
• How long the handover period will be?

If the offer and terms are reasonable then you should expect a deposit to be paid and held in trust. Depending on the contract the buyer may still be able to walk away (with their deposit) if the deal falls through.

Drawing up the contract - at this point a contract should be drawn up based on the agreed terms and conditions of the sale, and a due diligence period will usually commence. The contract is not usually executed at this stage.

The price is not the only thing to negotiate. Make sure you’re happy with the terms of the agreement. This should include the date when payments are to be made. In some circumstances payments are made in full. In others there may be scheduled payments over time.

Due diligence - this is the buyers opportunity to ensure the things they’ve been told about the business are correct.

Exchanging contracts - after the due diligence period the buyer will hopefully decide to sign the contract to buy the business. If they don’t proceed with the purchase after the contracts have been exchanged, in most cases you would keep the deposit.

Handover - during the period between the exchange of contracts and the final settlement (and in some cases for a short period of time after settlement), you should generally enter a period of training the new owner in the business.

The Small Business Hub - Provides you with valuable information and advice about selling your business. Plus, free access to hundreds of articles, downloadable guides, templates and advice from industry experts to help your business succeed. Visit The Small Business Hub.

You will find further information and assistance at the following:

• business.gov.au - Along with help for existing business people this site has information and advice specifically targeted to people thinking about selling a business.
• BEC Australia - your local business enterprise centre provides a range of services to small business.

There’s also a range of websites with state or territory specific information:

• Australian Capital Territory
• New South Wales
• Northern Territory
• Queensland
• South Australia
• Tasmania
• Victoria
• Western Australia

Hopefully you are about to bank a very tidy sum. While it may be tempting, now isn’t the time to simply sit back and relax. Well, not quite yet anyway. Speak to your local ANZ specialist first:

ANZ Small Business Specialist - can help you prepare your business for sale by reviewing your business’ financial situation and recommending solutions that help you demonstrate the profitability and value of your business. Why not book in an appointment for an A-Z Review^® to tailor a solution for your needs? Speak to your local ANZ Small Business Specialist today.

ANZ Retirement Banking Specialist – can help if you’re thinking about retiring and considering your options. They can review your everyday banking and also access a network of other specialists. Request an A-Z Review^® with a Retirement Banking Specialist.

ANZ ANZ Financial Planner – can help you manage the proceeds of the sale to maximise any investment and tax efficiencies. Your first appointment is complimentary and without obligation. Book an appointment with an ANZ Financial Planner.

Your specialist will be able to recommend where you invest the money from the sale of your business including:

ANZ Term Deposits – you can lock in a fixed higher rate of interest for amounts of $5,000 or more with terms from one month to five years. Find out more about ANZ Term Deposits. Find out more about ANZ Term Deposits.