There are many reasons why a business owner may want to exit & sell their business. Perhaps it’s time to retire or you’ve received an offer for the business that is hard to refuse. Then again, maybe the business is not making enough money to keep going or it’s time to pass the business on to family members or key employees.
Preparation for business exit and sales
Whatever the reason, planning your exit to maximise your business’ value will probably be the most important decision made during your business’s lifecycle. The success of your exit strategy will be improved if you seek professional advice throughout the life of your business, not just when you are planning to leave.
5 exit strategies from your business
A key question to ask yourself before making the final decision is whether your business is still viable. If it is but you no longer want to run your business, or it is in financial difficulty, first explore whether you can:
Steps to make when planning to leave
To maximise your financial and non-financial goals, it is best practice to have your exit strategy in mind before you even start your business. When you are ready to leave, allow at least one year for detailed planning before you put it on the market. Setting a closing date will keep your planning on track.
Get rid of obsolete stock and other assets, collect any outstanding debt and pay your creditors. Encourage your employees to take leave to reduce entitlements.
Research the industry your business is in. (The ATO releases basic benchmark data on various industries.) This will identify areas of your business that may require attention and highlight advantageous aspects that would attract buyers. As these buyers will be conducting the same research into your business, you will be prepared to answer any questions they may have.
To determine what your business is worth, find out the current market price of similar businesses. The sale price will be affected by any leases you have, as well as key contracts, ongoing business participation, your stock, any training provided for the owner and vendor finance. Among your assets for sale, you may wish to include intellectual property, trademarks, logos and so on. It may be beneficial to have a formal valuation done on your own business so you are clear on it's value before sale.
These could include an accountant, a financial planner, a business broker, a commercial lawyer or your business insurance broker. Contact them early to get the best advice on how to prepare for sale.
Prepare an information pack
To give yourself the best opportunity to attract the right buyers and provide clarity over what will be included in the sale, preparing an information pack on the business is essential.
Describe your business and customer profiles, highlight your business’ strengths and weaknesses, with some points on how to overcome those weaknesses. Stating your business’ unique selling proposition is a must to show where you have a competitive edge.
You will not need to provide detailed financials as part of the initial information pack but you will need to provide profit and loss statements, balance sheets and tax returns for each of the past three years. Further detailed financial information will need to be provided at the due diligence stage. Also include ratios showing how your business performs against industry benchmarks.
Updating your policies and procedures will add value as it will make it easier for the business under the new owner to operate.
Create a list of all business assets and their value. This includes your client list, intellectual property, trademarks, logos and so on.
Make a list of all active websites and social media accounts.
Explain if your business operates as a partnership, as sole trader or under a family trust.
Include documentation showing how you have implemented the plan.
Provide an organisational chart, documented roles and responsibilities for each role, and a list of key employee skills.
List all long-term customer contracts with their expiry dates, leases, including provisions to transfer leases to new owner, finance facilities and suppliers.
Demonstrate the value of the business name and reputation.
Outline the strengths of the business.
Include certificates of currency for compliance requirements such as accreditation from a standards authority.
Provide details gained from your research or from a business broker.
List what training you may provide to the new owner and over what period.
List the items or conditions of sale that you will not compromise on.
Contract of sale.
If you are looking at exiting your business, or you want to start putting a plan in place for an exit then make sure you talk to an Accountant / M&A Advisor. We can help you put together an exit strategy even if you aren’t looking at executing straight away but want to be aware of your best options.
Related: How to Exit your Business on a high
Have you noticed our #FridayExpertTips... here's one that relates to #CorporateAdvisory
“As a business owner, there will come a time when you start thinking about moving on and exiting from your business. Regardless of your reasons and the strategy you choose, you will undoubtedly improve your outcome if you seek professional advice along the way. Succession planning and timing your exit is essential in gaining the best outcome for your circumstance. Get in touch."