How to Put Your Business up for Sale in Australia
Selling a business is an extremely important decision that requires careful planning. You’ll need to come to a realistic conclusion regarding the worth of the business, and you’ll want to determine the best time to sell in order to maximize that worth. Before offering your business for sale in Australia, here are some of the many issues that need to be considered:
Are you really ready to sell?
Before going forward with the sale of your business, you should answer “yes” to each of the following questions: ·
Are you ready to sell your business? ·
Have you considered options such as becoming a silent partner or hiring outside management in addition to selling? ·
Will your family be on board with the sale of the business? ·
Do you want to be relieved of the responsibility of managing your business? ·
Is it the right time to sell your business? Consider this question in terms of both the market and your professional goals. ·
Do you believe you could get a higher selling price by selling your business now as opposed to waiting a few months or years? ·
Will selling your business benefit you financially? ·
Do you feel your life will be made easier if you sell your business? ·
Will you be free to earn your living after the sale, or might conditions of the sale contract prohibit you from certain business activities?
Once you’ve determined that you are, indeed, ready to sell your business, you will need to decide what you will say when potential buyers ask you why you are selling. This question will be asked of you frequently.
There are several good reasons to offer a business for sale that don’t include poor performance. For example, perhaps you’ve simply decided that you’d like to do something different, and it’s time for you to move on to the next stage of your life. Maybe you’re planning to retire, or you’d just like to have more time to devote to your family. Or, maybe you’re experiencing health problems that interfere with your ability to effectively run the business.
What will be included in the sale of your business?
You must be very specific about the assets that will be transferred to a buyer upon purchasing the business. The business’s assets should be clearly itemized for potential buyers.
If you own a freehold from which you operate your business, you must decide whether the freehold will be part of the sale. Selling the business itself (without the freehold) will lower the selling price, which could make the business more attractive to buyers. Retaining the freehold also has the potential to provide a steady income in the form of rental fees. This is an important thing to consider if you are planning to retire after selling your business.
In some instances, however, the freehold may be the key selling point, and withholding it from the business offering can be detrimental in these cases. For example, a prospective buyer may not actually be interested in the business at all, but rather the freehold itself.
Valuing your business
Each industry has its own set of guidelines by which businesses should be valued. But a universal truth is that sellers will try to achieve the highest price possible while buyers will try to pay the lowest price possible.
Without considering the specifics of any industry, there are a number of general methods that can be used to value a business:
You can use applicable industry ratios. For example, ten times the weekly turnover is a formula commonly used for a milk bar or mixed business. An arbitrary ratio to the amount originally paid for the business is also sometimes used (For example, twice the original purchase price).
You can simply set the price in the same range as similar businesses for sale or have the value determined by an independent business broker.
Alternatively, you can set the price at a number you’d like to achieve, and see if anyone is willing to pay it.
Financial information
A prospective buyer will typically want to know how your business has performed financially over the past three years. If you haven’t been using an automated system and don’t have these figures on hand, you will need time to prepare them. This task should be started immediately upon deciding to sell the business.
In order to make your business as attractive as possible to potential buyers, your balance sheet should show low debt levels because this indicates strong earnings.
The Estate Agents Act 1980, Section 52, requires you to provide a Vendor’s Statement to all prospective buyers of your business if the total sale price will be $200,000 or less. The Vendor’s Statement must be in writing and, per the Estate Agents (General, Accounts and Audit) Regulations 1997, must include the following information: ·
The name and address of both the business and the vendor ·
Details of the lease including commencement date, length, rent, etc. ·
Details about the business including hours of operation and business documents such as permits, licenses and registrations ·
Any details that affect the premises of the business ·
Details about any charges or claims on the business property (encumbrances) ·
Statements by the vendor detailing the trading record of the business ·
A statement from a certified accountant that affirms the truth of the business’s financial information
The Vendor’s Statement should be given to a potential buyer before any binding documents for the sale are signed. Failure to provide a Vendor’s Statement allows the purchaser to terminate the sale contract and receive a refund of any money paid.
Attracting potential buyers
Many business owners find that they have an existing network of potential buyers in the form of family, friends and staff. In fact, some family members might expect the business to be offered to them before it is offered for sale to an outside party. Staff members are also sometimes reluctant to see a business pass to outside ownership and are also, therefore, potential buyers. Begin your search for buyers with this existing network before offering your business for sale in the wider marketplace.
In the business marketplace, prospective buyers can be found in the form of competitors seeking to reduce competition, suppliers and contractors who want to increase their service/product range, recently retired individuals, people who have been unable to find a job, people coming to Australia under a business migration program or people who are seeking a professional and/or lifestyle change.
The key to attracting these potential buyers is creating awareness, and this can be achieved in a number of ways. For example, you can hire a business broker. Similar to the role of a real estate agent in the sale of personal property, a business broker is charged with contacting and screening potential buyers. A broker will also draft press advertisements and take care of most of the preliminary negotiations involved in the selling process.
Word of mouth can be a highly effective advertising tool in small or specialized markets, while traditional advertisements can provide an address or telephone number for interested parties to make inquiries. Advertising in trade journals is also a good way to reach the right audience with your message.
Consider developing a sales kit. This tangible resource for buyers allows the seller to reveal as little or as much about the business as he chooses, but a typical sale kit will include the following: ·
A description of the products and/or services offered by the business ·
A list of customers and key contracts ·
Business history including financial statements ·
The owner’s reason or reasons for selling the business ·
The asking price for the business and the terms of the sale ·
A list of assets that will be acquired by the buyer in the sale
Remember, when presenting your business to prospective buyers, that honesty is key. For example, if your business has not been doing well, this should be disclosed up front. However, letting a buyer know that a business hasn’t performed well is sometimes not as off-putting as one would think.
Some entrepreneurs are only interested in a business that will offer them the opportunity to “turn things around.” Purchasing a business that is already successful is sometimes viewed as a risky venture because the owner/operator is often the chief asset of such businesses, and the sale of these businesses eliminates that asset.
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