Marketing the business
Marketing your business to potential buyers has a number of stages.
Find potential buyers, such as:
- competitors, suppliers, or customers
- new market entrants, including foreign companies
- your management team
- financial investment companies.
Your accountant, lawyer, or wealth adviser may be able to put you in touch with interested parties, so share your plans with them.
Make the approach
You may want to keep your own business anonymous by using an adviser or business broker.
Alternatively you could directly approach a business that might be interested. Give careful consideration to how you will make the approach – is a phone call or a posted letter more appropriate?
Weighing up offers
There are many ways of paying for and taking over a business and you’ll need to carefully weigh up what is on offer. It’s always important to qualify the buyer – however good an offer may sound, unless it’s properly financed, it’s worthless. Consider the following issues.
What form will the payment take? What are the tax implications of selling a business? It’s important to consider all your options.
- Cash payment up front. This may may be the safest and most attractive option, but is it also tax-efficient?
- Vendor finance. You may be asked to leave some money in the business (vendor finance) and, if so, you’ll need to thoroughly check out the buyer’s reputation, track record and business skills.
- Deferred cash payment. If the buyer offers this, establish whether it’s guaranteed. The payments might be in the form of earnings payouts, linked to future sales or profits. If so, retain some form of management control to ensure performance targets are met. You may otherwise have to sell your business for less than you initially expected.
You might continue to have some responsibilities and liabilities. For example, you may be tied to warranties and indemnities for a year or longer. You might also be asked, or required, to remain involved in the business, but it’s important to remember you’ll no longer be in control.
Your attitude to the sale may also be affected by the buyer’s intentions.
- How will the business be run in the future?
- What expansion or sales plans does the buyer have?
- Will any parts of the business be sold off?
- How will the deal affect employees?
Completing the deal
The buyer’s offer will be subject to further due diligence and to a detailed sale agreement. The due diligence may involve the buyer’s accountants and lawyers.
The accountants will want to look at every aspect of your business’s finances and the lawyers will want to check that the business has full legal ownership of all key assets (eg. property deeds and licensing contracts). They’ll also want to look at the legal relationships with customers, suppliers and employees.
Many legal issues may be covered by warranties and indemnities that you, as a vendor, will almost certainly be asked to sign. Read these carefully and get professional advice before you do sign.
You may have to involve certain members of your staff during the due diligence process. Bear in mind the feelings and possible reactions of your employees when communicating your plans, as staff may fear their jobs are in jeopardy. Carefully consider who you’ll tell and when you’ll tell them.
- Consider planning for the possible sale of your business. Good preparation will help you maximise the value you get.
- List all the points you can implement in your business to improve its value.
- Assemble a team of experts to help you get the business into top shape.
- Include your accountant, lawyer, wealth adviser and NAB Business Banker. Get expert advice on whether you need to restructure your business to make it more attractive and to make the sale more tax-efficient.
- Consider all your options for exiting your business. You may be unable to find a buyer, so consider alternatives such as a management buyout or passing the business on to a family member.