February 5, 2017

Time to Sell Your Business?

You’ve worked hard in your business. Now it time to retire or move on and it’s pay day.

So to cash in you need to engage the services of a good selling agent. So what will he need to know to market your business and get the best possible sale price for you?

Here is a taste of some of the information which you will need to provide.

Be sure what you are selling.

We often see clients who are selling their businesses and really don’t appreciate the value of what they are selling.

So how is this addressed?

First, get your books in order. Work out what really is part of the business and what is personal expenditure. You will probably want your accountant to re-work your figures but the real value in your accountant is that he/she should be able to provide you with a justifiable sale price.

This will be important because you don’t want to price yourself out of the market nor do you want to under-sell. Pay day means getting paid for your effort, your sweat and toil which means all those hours small business owners (mostly unseen by employees and others) put into building and growing their business.

Be prepared – do your homework

A prudent buyer who is interested in your business will need to know with certainty what he/she is buying from you.

If the sale price includes plant and equipment, then get an inventory together which clearly identifies what is included. Brand names, model details, serial numbers and other identifying features could well solve any potential disputes later on.

You will have an obligation to make sure that the plant and equipment is in good working order and condition at the settlement date so you will need to continue to maintain the plant and equipment.

If any of the plant and equipment is leased or on hire purchase, then you will need to make sure that the selling agent knows this because you will have to make a decision as to how the plant and equipment is to be dealt with. Do you intend to pay out the lease/hire purchase or do you intend that the buyer take over the lease/hire purchase? How this is dealt with in the contract will be very important.

Goodwill

The goodwill of a business will usually be a significant part of what you are selling to a buyer of your business.

Goodwill includes many things but just to name a few – telephone (including mobile) and facsimile numbers, business name/s, other brandings, email addresses, domain names, customer lists etc.

The standard business contract in use in Queensland will generally restrict a seller from operating or being involved in a business similar to that being sold for a set period of time and generally for a specified area.

If, say, you are selling a branch office or only a part of your business then you will need to give careful consideration as to how you would want to deal with any restrictions which the buyer might want to place on you and the continued operation of any part of the business not being sold.

Property Lease

If the business which you are selling is operated from leased premises then you will need to make sure that you are not in breach of the terms of the lease but more importantly that there is a solid long term arrangement in place as to the occupation of the premises.

So, if you have a lease which has only a part of the term to go and say there are no options available to the buyer, then you should consider approaching the landlord and obtain a change to the lease to have option/s added to it.

Don’t overlook exercising any options which might be in the lease. This is an important part of the value of your business and should be protected at all costs.

Stock in trade and work in progress

As a general rule the stock value on hand at the settlement date is added to the sale price.

Stock has to be ‘good and saleable’ so the stock you sell to the buyer must be exactly that. Pretty straightforward really but issues do arise with this aspect every now and then.

Stocktakes can be conducted by specialist stocktakers or you can do this with the buyer. A stocktake will generally be made just prior to the settlement date.

There is the option for walk-in walk-out arrangements for a sale. This simply means that at the settlement date any stock on the business premises becomes the property of the buyer and is included in the sale price.

The current standard business contract does not specify that there has to be a set limit of stock left for the buyer. It is often the case that arrangements are entered into between the seller and the buyer of a business for a specified value of stock to be left at the settlement date.

Work in progress means simply where a job has been commenced and not completed at the settlement date. This is common in cases of the sale of a manufacturing business.

The concept is not difficult and could require the seller to invoice the work done up to the settlement date and the buyer to invoice later work.

This is just a sample of matters which you will need to consider in the sale of a business.

If you need to discuss the sale of a business or business assets then please contact us.