Things you need to know to get the best price for your Business AND get a Successful Sale
A business needs to be prepared for sale. Take the time to collect and have available the information that your Broker will require to appraise your business. Use the points below as a guide so the Broker can prepare a information memorandum that can be provided to interested purchasers.
The key to getting the best possible price for your business is in being able to provide the latest financial statements and year-to-date figures. These include the Profit & Loss Statement, Balance Sheet and Depreciation Schedule. For purchasers that need finance these are crucial. You should have your most recent full financial year completed and available. Your Broker will detail ad backs, proprietors wages and any one-off expenses incurred to calculate your “true profit”.
Treat your business like your home. First impressions are everything. Potential buyers want to see a well organised business like operation that they can visualise themselves working in. Get an opinion from a friend (or customer) on what you could do to improve your business presentation.
Plant & Equipment
Have an up to date list of all plant, equipment and fixtures included in the sale. Normally all plant and equipment is sold unencumbered unless specifically stated. Provide a separate list of leased or financed equipment that will be paid out at settlement. Equipment not owned should be detailed. List as fixed and moveable as fixed plant and equipment attracts stamp duty where moveable doesn’t. Try and avoid pricing individual items as this may be a point of disagreement with an intending purchaser and could jeopardise a sale. As a guide, follow your depreciation schedule and talk totals. You may be liable for capital gains on items sold at higher than depreciated value. In a recent hotel sale of almost $1,000,000 a $60.00 vacuum cleaner, missing from the premises on the final inspection put the entire sale in jeopardy. Luckily a cash adjustment at settlement saved the day. The purchaser also had a microwave oven fuse on it’s first use. Inspection by a technician found a mummified mouse inside. The purchaser tried to claim this also from the vendor but with no success.
Your lease may be the most important factor in the goodwill component of your businesses, particularly if you are a retail business. Some businesses are happy to pay $150,000 per year rent for less than 40 square metres. Why? Because they know that they are almost guaranteed sales of $12,000 to $16,000 a week. Your lease may not be as crucial but it is certainly important. Have a copy of your lease or at least a copy of the lease schedule available. The schedule summarises the main points of the lease such as costs, rent reviews, term and options.
If you have had plant and equipment repaired recently have copies of invoices on hand for intending purchasers to show that you are keeping good maintenance records. A standard clause used in an Offer to Purchase a Business is “Plant & Equipment to be in good working order and condition at settlement” Well your idea of “Good working order and condition” and my idea of “Good working order and condition” may be two completely different things. Why not demonstrate the plant and equipment well prior to the settlement date.
Settling In Period
This is the period of time that you, the vendor, will assist the purchaser in becoming familiar with your business and it’s operation. Normally this is done after settlement, without pay, for one or more weeks. The purchasers may require to be in your business one or two weeks prior to settlement to confirm the weekly sales. This is often a condition of purchase.
Will they stay or will they go? Sale of a business requires you to terminate the employment of all staff and pay them their appropriate entitlements. The purchaser may wish to re-employ certain staff members and this is normally detailed in the Offer to Purchase. Sometimes existing staff are crucial to successful sale. There is no reason why you or the new owner couldn’t offer some financial incentive to key staff to stay in place for a further 12 months. The new owner inherits all employee entitlements so normally some compensation is required.
You as the vendor will indemnify the purchaser from all claims arising against the business prior to the settlement date. You also accept all debts and receive all income outstanding at this date.
You warrant that all licenses necessary for the running of the business are current and included in the sale. Some businesses require the new owner to complete certain training.
The purchaser will not agree to you opening up in competition down the road. Normally expressed as a period of time and a distance from your existing business. I.E. 2 years and 10 kilometres. I believe a popular suburban restaurant was sold recently and the vendors purchased a restaurant business some kilometres away to make a fresh start. All was well until the purchasers of the original restaurant found that the new venture was only 9.5 kilometres away when the restraint of trade was 10 kilometers. The fact that the new owners had spent a substantial amount of money on their new venture was irrelevant. Threatened with legal action they were forced to sell up and move.
Where the sale price of a business includes “stock at valuation”, an independent stock take is normally conducted as close to settlement as possible. The cost is shared by both vendor and purchaser, often with funds held back (in the settlement agents trust account) to enable adjustment when finalised. A purchaser is not obliged to accept old or unsaleable stock nor pay more for stock than specified in the Agreement to Purchase. Keep your invoices or proof of purchase to establish the value. If you have really old stock, try and sell it at any price. It’s unlikely the purchasers will want to pay for it.
Please note that this information is of a general nature only. Buyers and Sellers are urged to seek independent financial and legal advice when buying or selling a business.
Using an experienced Business Broker is a good start. We offer an obligation free consultation. Contact us here:-