Selling a business more often than not, comes as a result of negotiation. Agreeing on the terms and conditions of sale and the price to be paid can be a lengthy process, but it’s one that you should go into having done the proper research. Here, we’ll give you some tips on how you can prepare to negotiate the sale of your business.
Research the broader implications of changing ownership
Selling your business doesn’t simply mean that you will no longer be at the helm. Have a look at the all the stakeholders in your business. If you’re selling a share of the business, think about how this will affect the other owners.
Employees
Another important consideration to make is the plight of your employees. Do you want them to continue in their current roles? If so, you may want to include as part of the terms of sale the continuation of your current staffing arrangements. At this point, you should look into whether the new owner is willing to transfer existing employees or whether you will need to terminate their employment.
The potential buyer
Additionally, it will be useful (and essential in many cases) to obtain some prior knowledge on your potential buyer. You should be aiming to find out whether the buyer will be able to secure finance to purchase your business. One way of doing this is to search the National Personal Insolvency Index (NPII) to see if the buyer is bankrupt. You can also check the Insolvency Notices page of the ASIC website to see if a company they are connected to is insolvent.
You can also request professional documentation such as your potential buyer’s CV. From this, you’ll be able to gauge whether they have experience in managing and owning a business. This is especially pertinent if you want to preserve the legacy of your business and may tell you what direction they’ll take your business in.
Get Advice Early On
The first step in preparing yourself for the sale of your business is getting professional advice. At this point in time, it’s worthwhile contacting an accountant, a business advisor and business broker. This will let you obtain an accurate market valuation of your business, calculate goodwill, forecast profits, and seek out potential buyers.
Once discussions commence, it is recommended you hire a Business Purchase and Sale Lawyer to negotiate on your behalf. This will ensure that you reach an agreement which suits your interests, whilst also benefitting the purchaser.
Have your business valued
Knowing the correct value of your business will ensure that you set the right price when selling your business. You’ll know what offers to reject for not appreciating the value of your business, and which offers adequately reflect it. Business valuations can take some time and are calculated based on a variety of factors including assets, forecasted profits and goodwill.
If you need a quick sale of your business then you may consider reducing the price during negotiations as a compromise.
Consider using a term sheet
Prior to negotiating the sale of your business, you may need to consider getting a term sheet from the buyer. This will save you time and money when conducting your due diligence and research into whether the buyer’s plan for the business is similar to yours. It will also ensure that the buyer will stick to specific terms during discussions, despite this document not being legally binding.
Be open and honest with your information
Prior to negotiating the sale of your business, you will need to consider commercial, financial, tax implications and legal matters. Having accurate and up-to-date records on hand is a must, as your potential buyer will want to see these. Having accurate records covering the past 5 financial years will instil confidence in your potential buyer. Some of the records you should have are:
- Profit and loss statements
- Details of your physical assets (such as equipment)
- Details of other assets (like intellectual property)
At the same time, you should ensure that all information mentioned during your negotiation is accurate. If it isn’t, this may constitute misleading or deceptive behaviour.
Know your tax obligations
You may need to pay Capital Gains Tax (CGT) on the sale of your business. Other tax issues that need to be addressed include lodging and paying PAYG, lodging tax returns and cancelling your ABN and other registrations like GST.
Furthermore, you will need to gather documents such as your insurance and registration papers.
Concluding remarks
Ultimately, getting the best outcome from your negotiations will require you to research, get advice, valuate your business, use the proper documents and do your due diligence. As with most things relating to business, planning and preparation is key.
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