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In order to sell your business at your desired price, you need to ensure your business is a well-oiled machine that can work without you. The purpose of this is not to go through every single aspect of selling your business, but to identify some of the major areas that help drive the price up when you sell your business. The process of selling a business is quite a complex one and involves a number of important steps.
Having your business ready for sale
If you are considering selling your business you should engage a business broker, a valuer, and/or a business valuer to assist in the sale. The right consultant will not only be able to help you through the process but also to ensure that you receive the best possible price for your business.
I have never seen a business with everything in place ready for sale at the time of asking. It generally takes about two years of discipline and hard work to get a business ready for sale. In many cases, a broker is not engaged to prepare a business for sale as the owner prefers to manage the sale personally.
Before you sell your business you will, of course, have an idea of what you think it is worth. Invariably, the actual value will be less once the price of the business is actually calculated. Generally, the three main components that determine the price of a business are:
- The goodwill including intellectual property of the business
- Any plant and equipment including digital assets of the business
- Any stock or inventory that the business owns
Marketing of the business for sale
Engaging a business broker to sell your business is the easiest way to market it to potential buyers. Generally, brokers will have a database of clients and customers that they can approach that may be interested in your business. They also have the ability and contacts to advertise your business in places where investors know to look when they are interested in buying a business.
A sale of business contract is a lot more complicated than a contract for the sale of land. It is important that the contract includes all things necessary to make the business continue to operate with the new owner, including:
- The name and address of the business
- The telephone, fax, website, email address of the business
- Any social media pages of the business
- The price that is agreed upon between the parties
- Whether the contract is subject to any due diligence (that is, enquiries made in relation to the business to make sure that it is what the seller says it is), finance (to make sure that the buyer can buy the business) or any other inspections required by the buyer
- The transfer of any government licenses required to operate the business (e.g. liquor licence)
- The transfer of the lease for the premises
- Restraint of trade provisions, preventing the seller from operating a competing business or taking existing clients from the business
- Any other aspect that is required from the business
If the vehicle that operates the business is set up correctly, then the tax position upon the sale of the business should be consistent with what was considered when the business was started. You must obtain advice from your accountant and/or financial advisor as to your tax liability from the sale. There are often mechanisms that can be put into place to minimise the tax that you must pay upon the sale of your business.
You must also engage a lawyer to either draft or review any business sale contract that you are considering entering into. For instance, some states in Australia require businesses to give certain types of disclosures when they are sold or when leases are being transferred. Therefore, it is essential that you obtain advice from a qualified lawyer about the terms of the contract and that you tell your lawyer all aspects of the business to ensure that everything is covered in the sale.
There is ‘no one size fits all’ model for the sale of a business, due to the fact that every business and the way that it is run is unique.
Once the contract is signed and all of the conditions have been complied with, the contract is usually settled with the payment of the purchase price by the buyer to the seller and the transfer of the business to the buyer by the seller. At this point, all of the legal forms to do with the names, telephones, utilities, and so on of the business should be lodged with the respective government departments and suppliers to ensure that the transfer is completed.
This is an edited extract from The Business Legal Lifecycle by Jeremy Streten – designed to guide and empower you with the knowledge you need to successfully navigate your business journey.