Planning the Sale of a Business

Before deciding to sell a business, you should ask yourself these questions:

• am I ready to sell?
• have I considered options other than selling (such as becoming a silent partner, bringing in outside management)?
• will family members support my decision to sell?
• do I want freedom, away from the responsibility of running my business? e.g. to pursue other business interests, spend time with family
• is the timing right? e.g. could the market and sale price be better if I waited, is my professional development on track
• will the sale benefit me financially?
• will the sale leave me free to earn my living, or will I be restrained from trading as, for example, a condition of the sale contract?

If the answer to any of these questions is 'no', then it could be wise to reassess your intention to sell. If the answers are 'yes', then you are ready to start planning the sale.

Why, what, who and when

Planning is essential for selling a business successfully. Planning involves making specific decisions about why you are selling, what will be sold, who it will be offered to and when to offer it.

Why are you selling?

Businesses are bought and sold every day, and there can be many plausible explanations for a sale e.g.:

• I've decided that it’s time to move on to the next phase of life
• I want to do something different
  I'm planning to retire
• I'm going to spend more time with my family
• I want to sell the business to someone younger, or to someone who has the additional resources to make it even more profitable
• I have health issues to deal with.

Your answer needs to convince a prospective buyer. Buyers will respond more favourably to genuine answers and consistent reasons.

What is being sold?

You should be very specific about what is being sold. Selling a business differs from selling the shares of a company.
If you’ve run the business under a company structure, buyers will be mainly interested in your business assets and operations, not the company itself. And selling a company does not just mean selling the business. It also involves disposing of all its debts and liabilities, such as outstanding loans, overdrafts, taxation, trade creditors, current orders, non-compliance with statutory requirements and complaints by previous customers.

Equipment and goods that are part of the sale

Clearly itemise the assets owned by the business that will form part of the sale.

Will the property be part of the sale?

If you’re the owner of both the business and the property (often referred to as ‘freehold’), you need to decide if you will include the property in the sale. If the property is not included, the selling price will be more affordable so you’ll attract more buyers. Holding onto the property may also provide rental income. On the other hand, it’s also possible a buyer may be more attracted to the property than they are to the business.

Family or employees are potential purchasers

Businesses are frequently handed over to family members. Family members may expect first right of refusal for purchase of the business.

Employees of the business are also potential buyers. Decide if the business will be offered to management, staff or family before engaging a business broker or placing advertisements in the general media.

Timing

As a general rule, the best times to sell are when the business and your customers or clients are peaking and the industry is likely to attract great interest. Make sure any key contracts (e.g. your retail lease agreement) are not too close to expiry.