Selling your business: Do’s and Don’ts

Most companies walk a well-trodden path through the business life cycle, from start up, to maturity, and finally exit. Whilst it certainly isn’t the case for every organisation, a majority think about an exit when the business reaches solid profitability and maximum value, the owners or managers of the business reach a point where they think they have worked for long enough and have taken the business as far as they can and want to see the rewards of their labour. Or it could be a case that the owners or managers are bored or tired of what they do and want to realise the value of what they have achieved and do something else, or maybe do nothing at all except enjoy retirement.

Let’s assume that in the perfect world every company is profitable and in a good place and the reason for exit is based on success not failure. This is not always the case, but if a company is thinking of selling, it is usually because the owners or management believe there is something worth selling and there is value to be realised. If we continue with the premise of a successful business that somebody will want to buy, it is now time to start thinking of the checklist that will need to be worked through to ensure the best possible sale. Let’s also assume that no business owner wants to look back with 100% hindsight and say, if only we had done this, that or the other, we would have realised more money for the business. Let’s also assume that there won’t be an unexpected call from an Arab prince or an eccentric billionaire desperate to buy the business for a ludicrous multiple, for no apparent reason.

To achieve the very best result when selling a business, there are a series of steps that should be followed and a list of do’s and don’ts that every business should be aware of, before they embark on, and during, the sales process. Selling a business is like growing a business and running a business, the better prepared and thorough an organisation is in its operations and financial management, the more successful it will be.

The first three golden rules of selling a business are:

1. Make sure you are ready to sell,
2. Decide on how you are going to sell; and
3. Make sure you have the right people (professionals) around you to make sure the sales process is smooth and successful.

Related: Planning a Merger or Acquisition? Here are our top tips...

Being ready to sell

Being ready to sell isn’t just about the business being in a good position to sell, it is also whether the owners or management are in the right head space to sell the business. It is not only about the money in this situation, it is also about what the future might hold for the business seller.

It is easy to assume retirement will be great at any age, but after spending years building a successful business, having nothing to do for many years, can have a very negative impact on individuals. Also, others may sell for a reasonable amount and then need to launch and build another business to fund retirement, whereas they may have been better sticking with what they have.

There are no right answers, and nobody knows what anybody’s future will hold, but it does need careful consideration to make the best decision based on the facts available, and of course, it isn’t just about the money, as what looks like a large amount today, might not look so much, if the person lives to 105 years old!

Related: A Checklist for Business Exit and Sales

Deciding how to sell

Deciding how to sell the business can be a difficult decision. It is not hard to sell a business yourself and it will be cheaper, but a professional services firm can nearly always, manage the whole process and maximise the price and terms of the agreement on the seller’s behalf. It is a more expensive option, but the chances are, it will be one of the best investments a company makes when selling. It takes all the personal subjectivity out of the sale and will ensure that the sale is managed and concluded successfully.

Making sure you have the right people

Like appointing a company or an individual to sell the business, recruiting the best professional advice is paramount to a successful sale. The most obvious two recruits are a lawyer and an accountant. These two skill sets will be essential right from the start of the sale process, and it is easy to have one company fulfil both the professional roles and the role of sales broker, which will provide a seamless service throughout the whole sales process.

As well as the legal and financial support, it is also worth thinking about the communication and marketing of the sale and making sure that no stone is left unturned finding the widest selection of possible buyers. Again, there are a number of companies who can provide the full business sale service and it is an attractive proposition to maximise the sale price and make the whole process as easy as possible. It also ensures there will be no lose ends left after the sale and that the sale should be concluded in the fastest possible time.

Related: How to exit your business on a high

The details of the process

Once the decision has been made to sell, whether the sale will be handled internally or by an external specialist and the necessary financial and legal expertise has been recruited, it is time to delve into the detail of the process. There are some steps that every organisation should be aware of when selling and even though not all of them will apply to every business, it is worth checking that you have every-one of them covered.

• Financial information – Put a pack together of all the business’ financial information – monthly and annual accounts, P&L statements, banking information (loans, bank statements, etc), forecasts and budgets, all regular costs and expected one off cost, Debtor and creditor lists and any other financial information that might be relevant for a potential buyer.
• Formal company information – ASIC and ATO information and registration documents, all company numbers and certification, insurance, and any legal documentation and of course, make sure everything is up to date!
• Legal information – all contracts for staff and any other supplier or customer contracts. Any legal commitments the company has entered – rental leases, equipment or machinery contracts, company cars and any other company or staff benefits that have a legal agreement. It is worth going through all aspects of the business to ensure that there is full transparency of every legal contract and any ownership of intellectual property the business might have. All health and safety and workers compensation agreements also need to be included.
• Operational information – It is good practice to include as much detail about the operational running of the business as possible. It builds trust with a potential seller and should speed up the sales process. Any information that will be useful for the buyer of the business should be included, trading history of the business, supplier and customer information and history, list of assets owned or leased by the business, inventory lists and all process and procedure information. It is also worth including historic and planned marketing collateral. In the operational information pack, It is also worth including strategy documents, forecasts and all favourable expectations for the business and the market it operates in.
• Value the business – to have a firm idea of what the business is worth and what owner expectations are, is vital before the sales process begins. It is often very useful to have a specialist financial company help determine the true market value of the business, to make sure that the owners or management aren’t being unrealistic about the price they expect to realise. A specialist financial organisation can also help with non-disclosure agreements, vetting potential purchasers and making sure the right companies and organisations know the business is available for purchase.
• A specialist financial advisor can also help set up both non-binding and binding heads of agreement, to assist a potential buyer conduct due diligence, check all the permits, licenses, and contracts to make sure that they can be transferred to a new owner. They can also help with negotiating the sale, work with a lawyer to produce a contract, help finalise the sale and even the hand over to the new owner. All these tasks can be daunting for the business owners and managers to take on with little or no experience.
• Staff ­– The adage that a company’s most important assets go up and down in the lift is never truer than when a business is being sold. As the business owner or managers, it is extremely important that employees are kept informed of what will happen to them and what is happening with the sale (obviously there may be confidentiality issues, which will affect how much information can be shared). The better the communication with staff and the transparency of knowledge about what is happening to them, the easier the sales process will be. If possible, keep staff in the loop on exactly what is happening in the sales process and give as much information about every employee’s likely future with the new owner as soon as you are able.

Take expert advice

Selling a business can be a long and stressful experience and so it is important to move through the process carefully and ensure that nothing is forgotten. While it is possible for an owner or managers to sell a business themselves, to ensure the easiest sales process and the best return, it is always a good idea to take expert advice. 

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."

This article is intended to provide general information only, and is not to be regarded as legal or financial advice. The content is based on current facts, circumstances, and assumptions, and its accuracy may be affected by changes in laws, regulations, or market conditions.  Accordingly, neither Azure Group Pty Ltd nor any member or employee of Azure Group or associated entities, undertakes responsibility arising in any way whatsoever to any persons in respect of this alert or any error or omissions herein, arising through negligence or otherwise howsoever caused. Readers are advised to consult with qualified professionals for advice specific to their situation before taking any action.