How to prepare your business for sale to help you to get the best price possible.
Deciding to sell one's business is not a decision to be taken lightly, and can carry both financial and emotional stresses. This is why it's crucial that small business owners tread carefully when the time comes to letting go of a company.
There are a range of reasons a business owner may come to the conclusion of selling. These may include your business being in demand from interested buyers, facing financial difficulty, market challenges, a lack of business growth, reaching retirement, or desiring to relocate. All of which are valid reasons for selling.
Selling your business, whatever your reasons, can often be the best decision for you and for the company. However, preparing your business for sale, and making the transaction, often requires a delicate hand to navigate.
It goes without saying that you need to ensure that your business meets a certain standard for it to achieve its maximum sale price, and therefore your profits from the sale. But what you may not realise is that you will also want to ensure that your buyer meets up to expectations as well. All that being said, let’s explore some tried and true tips to sell your business.
7 tips for selling a small business
1. Plan ahead
One of the most common mistakes a business owner may make when considering selling a business is not planning ahead and rushing the process. SeekBusiness.com.au advises that it may take at least 1 month just to prepare for sale, which includes gathering financial records, commercial information, legal details, balance sheets, and operational and forecasting models.
Doing your due diligence before the sale of a business can be invaluable in ensuring the process is not only smooth, but your business is valued accurately.
If you’re considering selling your business, now is the time to get your documentation in order. Consider performing an audit to see which areas you’re lacking organisation, such as identifying a need to upgrade your accounts software to better track invoices. Good record-keeping is essential in the early stages of a business’ sale.
2. Renew your contracts
Place yourself in the position of the buyer - you’d want to know that a potential new business you’re purchasing not only has profitability, but proof of repeat income. Before you put up the ‘for sale’ sign, it’s time to consider renewing your contracts with clients and suppliers to ensure that you can show a level of expected ongoing revenue on paper.
By showcasing a level of expected revenue beyond the sale date of your business, you can help to maximise your business valuation.
3. Timing is everything
Whatever industry your business sits in, the Australian economy and wider market will always be subject to fluctuation. However, there can be an art to selling a business at the right time.
Business owners should try to do their due diligence by following the latest news, as well as tracking the sale of similar businesses within their industry. Now may also be a helpful stage to consider seeking advice from industry experts, such as venture capitalists, who are experienced in purchasing businesses.
4. Consider using a broker
For busy owners, using a business broker to sell your business can carry significant advantages. This includes access to their expertise, better marketing and advertising, confidentiality within your industry, and the ability to let owners focus on their actual workload, as opposed to selling the business.
Finding the right broker is an important step in the sales process, as you don’t want to waste time and money with the wrong broker. It’s worth taking your time to interview a range of brokers instead of opting for the first that comes around.
Business owners who are getting ready to sell want to ensure they’ve partnered with the right broker who can achieve the best result for the seller, someone who will manage expectations carefully.
It’s not enough to assess and calculate your business’ value yourself. This can lead to unrealistic expectations, delayed sales, and disappointment all round. If you think it’s time to sell your business, it is worth seeking the professional expertise of a business valuator.
Ensure your finances are in order and you’ve followed tip 1 and 2 carefully to maximise your business’ value. This allows the valuator to come in and carefully assess the true value of your business. But, most importantly, it reduces the risk of underselling.
6. Join in the promotion
While a broker will help in the marketing and advertising, it is still recommended that business owners help to promote the sale of the business. After all, there is no one better-versed in the intricate details of your business or more passionate about it being transferred to the right hands than you. That doesn’t mean that a broker does not assist in this area, but it is important you help to promote the sale as well.
7. Know your buyer
The last thing a business owner should want to do is leave the company they built from the ground up in the wrong hands. Not only do you have the livelihoods of your former employees to consider, but your own reputation with your customer base as well. This is why finding the right buyer is a crucial component of making a sale.
Once you’ve generated interest in your business and have one or more potential buyers in the mix, research these buyers before you sign on the dotted line. It’s not unreasonable to request information around what a buyer intends to do with the business post-sale. Owners may also want to request proof of funds before they agree to sell, as if a buyer is using a loan to purchase your business, this may delay the sale further.
For more information on Earlypay’s cash flow solutions for Australian businesses, call our friendly team today on 1300 760 205 or visit our sign-up form.