How and Where to Sell or Buy a business

Sale of Business Help

Here is the information you will need to sell your business. We have sourced the most cost effective methods and best practices to help you on your way.

A legal Sale of Business Contract

How to successfully sell

Here are a few things you must keep in mind when you are selling your business:• Operating Costs: You should regularly review your operating costs but especially so when preparing your business for sale. Like they say “a penny saved is a penny earned” and in business reducing your operating costs is just as important as making sales. Your aim should be to reduce costs without affecting the efficiency of your business

• Profit Trends:  Your buyer will be looking at profit trends to see stable and steady growth of the business in the years leading up to a sale. At some stage you will need to disclose to the potential buyer your financial details showing the business performance. It’s imperative that you enter a confidentiality agreement prior to disclosing any sensitive business information.

• Tax: Ensure that all your tax obligations are up to date.

• Valuation Expectations: You must have realistic valuation expectations. Valuation is important but do not let it get in the way of securing the sale – if you have a serious buyer and you don’t quite meet eye to eye over the purchase price, negotiate. Sometimes it pays to remember the adage that “a bird in the hand is worth two in the bush.”

• Timing:  It is better to sell your business on historical trends and results – they are a proven track record that you can point to and they will provide a strong negotiation platform. If you forecast growth of 20% for the coming year and can point to 20% annual growth for the last two to three years, then your forecast will have more credibility.

Finding a Potential Buyer
When selling the most important thing is finding a buyer – not just any buyer but someone who is willing and ready to pay for it.
A serious buyer will be more interested in a business that is well prepared and presented for sale. There is nothing more certain to put off a buyer than being presented with a buying proposition that looks ’shabby’, has little or no records or information available to assist them to arrange the purchase.

Your ideal buyer should be one:

• presents the least hassles after the sale
• offers you the best price for your business
• who does not compete for your ongoing business if you are retaining interests in the business area.

Since there is a chance that you might have to work for him during the transitional stage after the sale, it is important that you get along with the buyer.
Strengths
It is important that you identify strong reasons that can be easily substantiated as to why your business would make a good buy. If you fail to identify the reasons, it is unlikely that you will be successful in finding a buyer for your business.

Financials
You must first determine if your business is healthy and financially sound. If not, your buyer might not offer you the price you want and will try to buy the business at a distressed price.

Planning
You should start planning the sale well in advance so that you have time to groom the business and make it as attractive as possible to potential buyers. It is advisable to get a preliminary valuation before you offer it for sale.

Timing
It is important that you sell your business at the right time. This can have a significant impact on the price you get for your business.
The general state of the economy is a key factor. The state of the industry your business is in also plays an important role. Buyers would be more willing to buy your business when their own business is doing well. The interest rates and lending practices of banks are also important. You should aim to sell when profits increasing and look likely to grow further. Tax consequences and any forthcoming changes to tax rules also play a role in determining the right time to sell your business.

Making your business attractive for the buyer

A poorly performing business might not have many takers. Selling it can be difficult or impossible. Before investing time and energy in trying to sell your business, you must determine if you really have something to sell. There are things which can make your business saleable:

• Profit history – All buyers will definitely want to see if the business has been making money. The business should make enough money to generously reward the owner’s day-to-day efforts. Most buyers will be seeking a business that has a consistent record of profitability.

• Good location – A good location makes your business more saleable especially if the location is essential to the success of the business—for example, a car rental business located near an Airport.

• Good condition of premises and equipment. Buyers will want to visit and inspect your business premises before they make any commitment. A run down premises is likely to be an eye sore and surely make your business less attractive to the buyer. Inventories and other goods should be kept in the appropriate places. All office equipment and machinery must be in working condition.

• A well stocked inventory of goods

• A loyal group of customers or clients. For any business, the existence of good ongoing relationships with customers and suppliers is very important. It can be a compelling reason why a buyer will choose your business over others.

• Lucrative long-term contracts with customers or clients

• Trade secrets, copyrights, patents, or trademarks that are hard or impossible to replicate

• Solve Legal Problems – No potential buyer will want to face the strong possibility of significant lawsuits by unhappy customers or disgruntled employees.

• Collection of Accounts Receivable – If you want to sell your business including your accounts receivable, you’ll need to show that they are almost certainly collectable.

• Accounts – Your accounts should be clear, current, and consistent, clearly outlining income, costs, and cash flow.

• Business Plan for the Future – A well written business plan that looks ahead for the next three or five years goes a long way in making your business attractive to buyers. Your business plan should be credible, convincing and help the buyer envision future growth and profits.

• Location security – Sometimes, the very fact that the buyer can operate the business from its existing location can play an important role in making your business attractive to the buyer. So if your business is operating on a leased property, it would be wise to lock in the lease. If your lease is about to expire, it will be a big disadvantage.

• Complete Disclosure – It would be in your interest to disclose all aspects of your business including the negatives to the buyer. The buyer will conduct a due diligence before purchasing your business. Should you conceal any aspect of your business and the buyer unearths them during the due diligence, it could put you in a embarrassing situation and the buyer can even walk out of the negotiation and in some cases sue you.

• Honest Business Practices – Any business with a notorious reputation is likely to turn buyers away.

• Provide a Clear Picture of How You Get Compensated – As the owner of the business, you may receive a salary, a bonus, fringe benefits— or all these things. Inform buyers about these forms of compensation and also all non-cash perks, such as business-related travel and entertainment or a car purchased by the business.

• Have a Believable Explanation of Why You’re Selling – No business man will walk away from a profitable business. Buyers will want to know the reason for the sale.

There’s one aspect of the deal that you must structure with great care: the security deposit, also called advance or token amount. If the buyer does not ultimately pay the entire sale amount, you can sue the buyer. But if the buyer can’t pay, winning a judgment against that person probably won’t do you any good. If the buyer goes into bankruptcy, you won’t even be allowed to sue. The security deposit you receive is your assurance you will be able to get at least something in such cases. You need to be careful, and very tough, when negotiating the security deposit.

Never bring your ego in the sale. Every buyer will be looking at the weaknesses in the business. Don’t take it personally. They have to do so to protect themselves. If you want the negotiations to begin, you must let go of your personal feelings. The faster you let go of your personal feelings, the sooner the real negotiations can begin and you can get the best deal. The best deal for your business may not necessarily be the best deal for you. Separate the two and you stand a very good chance of success.

Key Negotiation Issues

• Structure of the sale - Will you be selling your entire business or just its assets?
• Assets being transferred – Will you keep some assets that are currently part of the business?
• Payment terms – Will the buyer pay full cash upfront or make payment in installments?
• Seller protection – What rights will you have if the buyer fails to make the required payment?
• Seller warranties – What, if any, warranties will you make about the condition of the business or its assets?
• Buyer warranties – Other than the security deposit, will the buyer be making any other warranties?
• Liabilities – How will the debts, liabilities and pending / threatened litigation be handled? Will it be taken over by the Buyer or will you deal with them?
• Future connection to the business – Does the buyer want you to remain involved in the business even after sale? If so on what terms – compensation, period, number of hours, responsibilities.
• Non-compete – Restrictions, if any on your future business activity.