5 Secrets to Selling your Business

Whether you are selling a small, medium or large business, a business opportunity or a franchise there are a number of key elements that you need to have right before you put your business on the market and attract buyers.

You need to start with the end in mind, knowing how much you want to achieve from the sale, what time lines you are working towards and your desired outcomes.

Therefore it’s a good idea to have a written plan that includes the following 5 ‘secrets’, get these 5 key elements to your business sale correct and there is no reason why you shouldn’t have a steady stream of qualified and interested parties to buy your business or franchise opportunity.

So what are these 5 key elements?

Timing & Planning - Broker or Private Sale – Marketing – Due Diligence & Negotiation - The Sale and Handover

1 – Timing & Planning

Timing - A quick sale is never going to be particularly beneficial to you? Sell when you are still enjoying things. When you have the luxury of choice you can choose when to market the business. For example in a seasonal business you would probably want to have made your profits and therefore maximise the potential sale proceeds. Timing the sale to coincide with a newly completed set of accounts is always helpful as this can reduce uncertainty over the profit and assets being sold. So, a few months could well prove beneficial.

Valuation – how much do you want and is your business worth that? This is often looked at as being a complex process - however it is not a science. The price is simply "the amount a willing buyer is prepared to pay a willing vendor". Before embarking on the sales process you will need to have a reasonable idea of the worth of the business. It may be based on net assets, or cash generation, or a multiple of profits or some combination of these. The rate of improvement or decline in these will also be an influence. Some industries use very specific methods, such as a value per room in the case of hotels, or a % of fee income for professional practices.

Profits will not always be the sole influence. Valuing businesses is definitely an art. Always ask yourself what you would realistically pay for it if you were in the 'buyer's shoes'. Also consider income that the person would be getting risk free, which is, working 9-5 risk-free with a fixed salary (and holidays, benefits etc). People in such positions are likely to deduct their usual salary cost in the equation and then pay an earnings multiple on the remainder You need to establish at an early stage your minimum acceptable price and, if there are separate elements of it, what, if anything, is negotiable or tradable.

You also need to get professional advice from your accountant and lawyers. Get them involved early so it’s not a surprise one day when you call them and say you’ve found a buyer and want to sell your business. There are taxes and legal implications and the experts will guide you through the process from start to finish, pointing out the pitfalls and advising you on the most efficient and effective methods that pertain to your situation.

Prepare a good Sales Memorandum - This is the number one tip that many ‘un-prepared’ business sellers don’t get right. You need to prepare an information ‘pack’ that you can easily email or send out to interested parties. It’s your shop window and sales document so spend some time and make it the best it can be.

This is often the only piece of information available to the purchaser after the first enquiry and it is the deciding one. The sales memorandum is intended to be a selling document and should therefore show the full potential of the business. Its purpose is to bring a purchaser to the negotiating table. It should, of course, be truthful and its contents capable of verification.

Presentation is extremely important. Product literature, charts and tables are much more relevant than pages and pages of management accounts. Clarity of language is far more important than technical detail or precision. They may need to be carefully drawn up for the particular purchaser in mind depending on how the business may go and how diverse its offerings are. Stress good points, but don't overlook bad. Bear in mind that the due diligence process will find you out if you are trying to conceal something.

Your sales memorandum can be just a few pages of A4 paper to 20 or 30 depending on the size of business, kind of franchise or business opportunity. No need to bore people with too much of the complicated accounts and details (that can come later if they are keen to learn more) but excite them about buying your business.

2 - Broker or Private Sale

There are pros and cons for both but this is a very important decision to make early on.

Brokers and agents are full time professionals and they sell business all day every day. It’s what they get paid for and its what they are good at. So if you have a high value larger business or franchise it may well be worth your time and money to let a licensed broker handle the whole sales process for you. In many cases they will look after the preparation of the sales memorandum for you. They will market your business to their database of buyers, conduct some free and some paid marketing activities, deal with interested parties and their due diligence process and handle the negotiations through to a successful sale. Brokers and Agents will charge you a commission / fee for their work and this will vary between brokers and the value of your business so do your homework and shop around to see who would be best for your business. There is a list of business brokers on businesses4sale.co.nz.

If you decide to sell privately you can save on the commission charges of a broker but you will need to handle the sales process yourself. Don’t worry, it’s not difficult and with some proper planning and advice can be a straight forward process from marketing, negotiation and eventual sale.

3 – Marketing

This is where the rubber meets the road.... You know the old saying, ‘You can’t sell a secret’. It’s so true for selling a business. You have to find a buyer and you do that by marketing / advertising your business. You need to advertise where buyers are looking. These days the internet is the first place potential buyers are looking so whether you list with a broker or private sale you need to ensure your business or franchise can be found online. And I’m not just talking about a simple advert on Trade me. You need to be listed on the main online web sites such as businesses4sale.co.nz, you have to ensure that your business is seen by databases of existing business buyers and you absolutely must be promoted on social networks such as Facebook, Twitter, Linkedin and more. businessopportunity.co.nz is very active in promoting through social media channels.

Did you know that more than 2 million kiwis log into Facebook every day and a high percentage use it as their ‘gateway’ to the internet. businesses4sale.co.nz can reach these potential buyers like no other site and promote your business. We have a huge database of buyers and we actively promote all listings on all social media platforms. Our social media advertising specialists ensure we use the latest online marketing techniques to search out and reach an audience that is likely to be interested in your business and actively seek out those buyers and put your business in front of them.

When creating adverts, especially online use attention grabbing headlines, lots of photographs and text in the ad to show the business off to it’s best potential. Give lots of information and multiple ways people can reach you, phone numbers, email etc. There are other marketing methods such as local and national newspapers, special trade magazines and business for sale magazines. For franchises and business opportunities there are banner advertising options on businesses4sale.co.nz and other web sites to generate multiple enquiries.

Potential Purchasers - When a buyer enquires through your marketing efforts it’s crucial that you follow up in a timely and professional manner, either via email or phone.

The potential purchaser is interested in your business so keep the enthusiasm going by getting the information memorandum to them quickly. You may want to have a non-disclosure document signed if you are giving them any sensitive financial information or trade secrets at this stage or you may wait until later. Give them a day or so to read it and if they haven’t come back to you with questions you need to phone and make contact within 24/48 hours. A simple phone script such as, "Hi it’s Bob here from XYZ. I’m just calling to see if you have any interest in the business/franchise for sale and to see if you have any questions”.

This simple phone script usually discovers very quickly if it’s something they are interested in or not. If they are it’s time to meet them and get them excited about buying your business.

4 - Due Diligence & Negotiation

You only need one buyer but you may have to deal with multiple interested parties before you secure the right buyer. Depending on the size of business buyers will want to ask you all kinds of questions while they conduct their due diligence and see if they want to make you an offer. They will want to see proof of income, accounts for previous years, orders, contracts, meet staff, check out the competition, look at your lease documents, arrange their finance, talk to lawyers and accountants, do their homework on your products and services etc etc.

Don’t forget about your business while all this is going on, you still need to run the business to the best of your ability while you are going through the sales process. Don’t drop the ball now, especially when you’re so close. If the buyer wants to make an offer and you’re doing a private sale you need to be properly advised by your accountants and solicitor. Don’t be tempted to try and save money here, get professional advice and negotiate the sales price and the incursions, exclusions properly. There are tax and legal implications with selling a business. Do it right!

Negotiate a sale price that you are happy to receive and the buyer is happy to pay and you’re nearly there....

5 – The Sale & Handover period.

Your broker or your lawyers will handle the correct sales and purchase agreements and ensure the business is transferred correctly and legally and the new owner ‘gets what he pays for’. The buyer will usually pay a deposit (10% - 20% is normal) then the balance on settlement day.

As part of the negotiation process you will have decided on a hand over period. This may be as little as a few days to a week for small one man band business and for larger businesses this can often be months, even a year of handover and continued management is not un-common. So be sure you have this is black and white and are fully aware of the implications of any training and ‘bedding in’ for the new owner. Congratulations – you’ve sold your business. On to the next ☺

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