If you’re thinking of selling your business, you may be looking for some help and some pointers on what you need to know before embarking on this journey.
This guide will take you through the most vital points of the selling process; from preparing your business to go to market, to intense negotiations that may occur. We also have tips on how best to communicate with your potential buyers, and at what stages you ought to seek expert help in order to get the best deal.
First things first: Timing
When is the right time to sell your business?
How long will it take to sell your business?
Can I sell my business?
These are the most common questions when it comes to timing and are often the first things business owners ask before deciding to sell.
Let’s start with the first question about the right time to sell. This is incredibly important as your timing can influence the price of your business. Usually the sale price reflects the performance and profits garnered by your business.
As a result, you should aim to sell when you are performing well. If profits are low, you need to assess whether you can improve before going to market or assess whether you should continue striving for increased profits or sell before your performance deteriorates further.
The next thing often speculated about is how long it will take to sell your business.
There is no conclusive answer to this question. It depends on the individual circumstances of the sale, including many variables from the seller’s expectations, the needs of the buyer and the state of the market.
Generally, smaller businesses sell within 9-12 months whereas mid to large sized businesses take longer at 12-18 months; however, it varies.
Be prepared for a long process. It can be easy to sell to the first interested buyer but try to not rush the sale and learn to love the process. This patience will ensure you sell to the right person and can likely get what you want from the sale.
Get your business in the best shape to sell
In other words, do not enter the market without properly preparing your business first. It can be easy to act on your emotions but taking to time to get your business in order beforehand will likely reduce the risk of deals collapsing in the future.
So if you have become unmotivated with your business or have let it go in recent months, it’s time to reinvigorate it and get it ready for the market. You want it to become a saleable commodity, so see our points below on how you can do that.
Make sure you are dispensable
Make sure that your business can run efficiently and effectively when you leave. A buyer does not want to buy a business that collapse and cannot function as soon as the owner leaves.
Spend time training your management team and increasing their responsibilities. This will serve to gradually reduce their dependence on you, and you can rely on them to run the business to your standards.
Organise your books
This involves anything from employee disputes needing to be settled to overdue contracts to be signed.
You want your business to be appealing to buyers and sorting these issues with a keen buyer in the mix may concern them or delay the sale. Time wasted can kill the deal as a buyer loses interest, so do your due diligence early on to avoid this.
Ensure your employees have contracts in place and perhaps organise a staff handbook outlining key policies in your business.
Keep an eye on your financial situation
Remember, your sale price reflects your performance, so keep an eye on outgoings and expenses. Try and reduce personal expenses and push as much of your cash flow to the bottom line of your business as possible.
Perhaps, to reassure your buyers on your finances, invest in getting an audit done of your business’ accounts from the last few years. This will give clarity on the performance and profits of your business for a buyer to refer to.
Get third party consent
You may need consent from your landlord or suppliers before you can officially complete a sale, so ensure you secure this early on. If you wait until the last minute, this could delay proceedings and risk fracturing the deal.
Once you have undergone pre-sale preparations, the next order of business is the pre-sale valuation.
Putting a price tag on something you have nurtured and watched grow can be a difficult and emotional, so you must put your feelings aside and bring in professionals help you value your business correctly.
Your due diligence
Doing your due diligence is a long process that can uncover deeper issues within your business. As unappealing as this sounds, it is a crucial step to take to maintain your buyer’s confidence. The seller should also be completely transparent in this phase and open to involving the buying; asking them what documents or information they would like access to.
Being upfront shows that, as a seller, you have nothing to hide, instilling confidence in the buyer. Your due diligence should focus on the legal, financial and commercial strands of your business. Envisage what you would want access to as a buyer and strive to meet those needs.
Protect yourself and your business
The first step in protecting yourself and details about your business is to ensure confidentiality. Prepare a Non-Disclosure Agreement (NDA) and give it your prospective buyer to sign before divulging sensitive, private information.
Also, look into hiring a solicitor to protect your best interests and the integrity of your business. Make sure they have valid experience in this area and are available for the duration of the selling process to offer advice of how to navigate potential hurdles.
Qualify your potential buyers
Protecting yourself also includes against buyer that may be disingenuous or who is not eligible to commit to a sale. To decrease the risk of delays, qualify your buyers in the early conversations you are having.
You should ask them why they want to buy your business and how long they have been looking to buy for. Ask them about their current circumstances and if they have experience in your industry. Most importantly, make sure they have the budget to buy your business. Not having the funds will end a prospective sale instantly, so make sure you figure it out early.
These stages of selling involve getting your books in order, organising administrative tasks and insuring yourself against any issues that may arise.
The next part of selling a business is the negotiation stage, one that focuses on how you communicate with your buyer and your attitude towards being flexible, but also determined, with the terms of the sale.
Be open to communication
Before negotiations even begin it is good to have the foresight that they will occur at some point and to prepare for that. It shows good form to touch base with your prospective buyer in the early stages to confer about both your goals and core terms. When negotiations begin this initial rapport and understanding should benefit you when making decisions.
Listen closely to what your buyer is saying and ask as many questions as possible. This will offer you a good overview of their needs and give you a good idea of terms that you can or cannot control.
It is inevitable that you will need to be flexible in negotiations. Coming to a fair compromise with a buyer is better than losing the sale altogether after all.
Prepare a ‘Heads of Terms’ document
Once negotiations have been agreed, outline the terms in a ‘Heads of Terms’ document. It is not legally binding but provides clarity on what has been agreed upon and the deal template.
Redrafts may occur until both parties are in full agreement. This is also the time to ask questions and straighten out any issues or misunderstandings that may be underlying.
Try to remember: Selling a business is hard
The journey you are about to embark upon will be long and stressful. There are many things to prepare and your success relies equally on the effort you put in and variables you cannot control. Therefore, prepare well, have experts ready when you need them, do your due diligence and be ready for negotiations