*Please note that this article provides general information only and will not be applicable in all circumstances, nor should it be relied upon as legal advice. Should you wish to obtain legal advice, we recommend that you get in touch with us.

Selling a business is a challenging experience that requires careful planning and patience. Once you have decided to sell (which is a difficult decision in itself), there are several steps you will need to take to manage the sale effectively. This article contains a brief outline of some of these considerations.

Plan ahead

The process of selling a business can be long and arduous. There are good reasons for this, however, as a rushed sale can lead to issues with due diligence on either side or can cause you to miss out on a chance to make your business more attractive to potential buyers. Finding a buyer can also prove difficult, particularly if you run a small business or operate in a specialist field.

Ask yourself, ‘who can help me sell my business?’

Even if you run a small business, you will likely need to form a team to guide you through the sale process. Firstly, you should consider gathering your internal team to begin discussions about the sale. This may consist of those individuals who have key knowledge about your business and can help move the sale in the right direction. It may also be important for the continued success or attractiveness of the business sale to potential suitors that key employees are retained in the business – you will need to consider this risk particularly by managing employee morale.

Next, you should also approach external advisers such as accountants, lawyers, and valuers. These parties offer key expertise in the sale process, but also bring a fresh perspective that can prevent your judgement from being clouded by your proximity to the business.

What is due diligence?

Vendor due diligence is a key aspect of any business sale, as prospective buyers will require accurate and detailed information regarding the operation of the business, its assets, and financial performance. You will likely be asked to gather certain documentation relating to:

the financial performance of the business;
business contracts with suppliers and customers;
property (including intellectual property) owned or leased by the business;
customer lists; and
employee details (including payroll information and worker entitlements).

Some of the above information is critical to the ongoing success of your business. So, it is important to protect this information by disclosing it sparingly and with documentation protecting it.

What is the value of my business?

This can be determined by an expert valuer, but it is worth understanding the factors that determine business value in order to properly prepare for a sale. The tangible and intangible assets of a business and its profitability will clearly be important, but other factors such as a proven track record (i.e., years of experience and a solid performance within the market) will also be taken into account. Finally, although it may not affect the pure value of a business, the circumstances of the sale may still affect the price you can obtain for your business, as buyers will be in a stronger negotiating position if you are forced to sell the business compared to if you are selling of your own accord.

How can I make my business as attractive as possible?

Selling your business not only requires you to want to sell your business, but it requires someone to want to buy it. Sometimes your business is not set up to sell, and you need to invest time, money, or resources into making it more attractive to sell.

Your business may have red flags for a potential buyer, for example, an inexperienced management team. This may be something that should be addressed before shopping your business around as a failed sales campaign has distracted you from running your business and may suggest to future potential buyers that there is something wrong with your business.

How do I structure the sale of my business?

Once you have found a potential buyer, the next step will be to agree on the terms of the sale. This will include agreeing on the purchase price, the inclusions, and exclusions, what is to occur with employees, and when and how you will get paid. Importantly, you will need to decide what you are going to do once you no longer own the business. This may result in you being restrained from running a similar business for a period of time.

Having an experienced lawyer on your team can assist you with not only preparing a head of agreement, but throughout the transaction, including drafting the sale agreement and attending to the conveyance of the business.

Things to keep in mind

Even if you think you have found the perfect buyer, negotiations may break down and the sale might collapse. It is therefore important that you protect your confidential information so that important knowledge about your business does not fall into the wrong hands.

Lastly, you should be wary of engaging in any conduct that may be misleading or deceptive during the sale process – this includes withholding key data or giving inaccurate information. There are severe penalties for this behaviour, as it leaves you open to legal action from a buyer seeking to recover any losses they have suffered.

How we can help

Merton Lawyers has years of experience assisting both sellers and buyers in business transactions. Please get in touch to book a complimentary meeting and discuss how we can assist you.

Author, Julian Barclay.

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