5 Tips When Selling Your Business

By Matthew Muscat, Matthew Muscat
Senior Manager
15 September 2021

In brief:

  • Sound financial records will improve a vendor’s negotiating position. They will simplify the due diligence process and reduce uncertainty for the buyer.
  • Document systems and processes to create a walk-in-walk out opportunity for the buyer.
  • Plan your exit and understand what you need from a potential sale before any negotiation commences.

Over the past 10 years working in business advisory helping small to medium sized businesses I have witnessed the importance of a business to a business owner’s personal life. Small business is hard work and has a direct impact on an owner’s personal wellbeing, both financially and emotionally. It is for this reason that it’s so important to have a sound exit strategy.

After many years of hard work and development of their business, owners will often have built an asset that can be sold. This is a fantastic position to be in and one that isn’t afforded to all business owners for any number of reasons. Below is a guide of what actions can be taken to ensure the hard work over many years is capitalized on.

Before you sell

Have sound financial records

Having been involved in business sales before, acquirers and their advisors will inevitably have a number of questions about the business and the financial records of the business. These questions can be tedious but are ultimately necessary. The key is to ensure that the number of questions are minimised. The more questions, the more doubt in the prospective buyer’s mind. And the more doubt, the lower the sale price.

Ensure you have sound financial records that make good sense. In some cases it may be worthwhile having your financial reports audited in the years leading up to when you want to sell. This will provide the buyer with greater confidence in what they are buying and ultimately drive up the sale price.

Ensure the owner is not the business

Many people running small businesses are so entwined within the business that there isn’t anything to sell. Prospective buyers will want to see an ability to seamlessly transition from one owner to the next. Where relationships and IP sit with the owner themselves, this transition can be difficult. Setting up policies and procedures within a clear commercial structure helps prospective acquirers to see a viable changeover and a viable business that doesn’t need the owner to prosper.

Time to sell

Communication

Speak to your financial advisor before you enter into an agreement. Your advisor will have dealt with these matters many times before and will be able to point you in the right direction. Speaking to your accountant or advisor after the fact may mean that something critical has not been considered and that you are now locked into an unfavorable situation.

Get a good legal representative

Similar to the communication piece above, having a good legal representative is integral. It’s a stressful time and having a sound legal advisor will ensure any questions you have along the way can be answered in a timely manner. There will inevitably be problems along the way, so have someone who is experienced and you can trust. Getting a referral from your financial advisor/s can assist in this process.

Make a list of critical parts to the business and ask questions

Often people enter into an agreement without discuss the finer details and then when those finer details do get questioned there are disagreements. Who’s paying for what? Who’s paying the debt? Is the debt staying with the business? How much cash needs to remain in the business? How are you changing bank authorities? Which debtors do I collect? Do I have to pay the creditors down? Are there invoices post settlement date that I need to pay for? What do I need to provide at settlement date? And the list goes on. Making a list of questions from the start and putting them on the table will make the process much smoother and without surprises.

Hopefully these tips have been helpful and when it is time for you to consider your exit strategy, make sure you speak to your trusted PKF advisor.