A Step-by-Step Guide to Selling Your Business

Introduction

Deciding to sell your business is a major step, whether you are looking to retire, pursue new ventures, or capitalise on your hard work.

A well-structured approach based on careful planning, strategic decision-making and a clear understanding of the process can help you maximise the value of your business and ensure a smooth transition.

This article breaks down the essential steps to help you navigate the sale process with confidence to secure the best outcome.

Steps for Selling Your Business

The process of selling your business can be broken down into the following key steps:

1. Prepare your business for sale;
2. Determine the value of your business;
3. Engage professional advisors;
4. Negotiate sale terms and enter a Heads of Agreement;
5. Assist with due diligence;
6. Enter into a contract of sale;
7. Transfer assets and licences;
8. Settle the sale; and
9. Complete handover and fulfil obligations.

Prepare your Business for Sale

Before selling your business, it is essential that you prepare it for sale.

During this time, you should:

1. Review financial records, tax returns and legal documents to assess financial health and compliance;
2. Resolve any operational inefficiencies affecting the business;
3. Settle outstanding liabilities; and
4. Verify compliance with all relevant regulations and industry standards.

In doing the above you should also compile a list of what assets are to be included and excluded from the sale.

It may also be worth considering whether a business valuation should be obtained to determine a fair market price for the business before listing it for sale.

Determine the Value of your Business

If you decide to obtain a business valuation, you should obtain a professional valuer or a business broker.

The valuer or broker will assess your tangible assets such as your equipment and stock as well as your intangible assets like your brand reputation and goodwill before determining the market value of your business.

To determine a competitive asking price, you can also compare recent sale prices of similar businesses in your industry.

Engage Professional Advisors

In addition to assisting you with valuing your business, a business broker can act as your representative for the sale of your business, liaising with potential purchasers.

Your broker may ask you to help prepare an information memorandum to market the business, either publicly or discreetly. This memorandum provides potential purchasers with essential details about the business.

Consult a solicitor and accountant to understand your legal obligations and tax implications before proceeding with the sale.

The solicitor can also assist in the future with preparing a Heads of Agreement and the contract of sale.

Negotiate Sale Terms and Sign a Heads of Agreement

Once your business is on the market, your broker will liaise with potential purchasers and bring you offers.

If you are willing to accept one of the offers made, you can enter into negotiations regarding the purchase price, what is included and excluded and whether you will provide any transition support to the purchaser.

Once both parties agree on these details, you should formalise them in a Heads of Agreement. A Heads of Agreement outlines key terms before the official contract is prepared.

We would also recommend including a confidentiality clause in the Heads of Agreement or having the purchaser sign a Non-Disclosure Agreement. Once the purchaser signs the Heads of Agreement, they will be entitled to conduct due diligence. We would recommend having them sign this to ensure your business records, data and other sensitive information are adequately protected.

A Heads of Agreement can be prepared by your solicitor or a business broker.

You can find more details on Heads of Agreement here.

Assist with Due Diligence

Once a Heads of Agreement is signed, the purchaser can begin conducting formal due diligence on the business.

During this time, the purchaser will review financial records, contracts, lease agreements and other key business matters. You should provide reasonable and relevant information to the purchaser on request.

It can be helpful to involve your solicitor and accountant in due diligence requests, as they can advise you on what information to provide to the purchaser.

Enter into a Contract of Sale

After the Heads of Agreement is signed and while due diligence is occurring, your solicitor can attend to preparing the contract of sale.

A contract of sale will contain more specific and expansive terms and conditions than the Heads of Agreement. The contract will dictate all the terms and conditions associated with the purchase. It will cover the key terms such as the purchase price, assets, stock value and handover details. The contract will also include the necessary warranties and indemnities agreed to between the parties.

Based on the purchaser’s due diligence, they may try to negotiate additional terms, such as assigning key contracts. This is something you should discuss with your solicitor and where necessary, your accountant.

Once the parties have agreed to all the terms associated with the purchase, you will sign the contract of sale. The purchaser will also need to sign the contract and make payment of the deposit. The deposit can be held by the agent, broker or your solicitor.

When both parties have signed the contract, it is exchanged (this is where both parties receive a copy of the fully signed and dated contract) and the contract becomes legally binding on all parties.

Transfer Assets and Licences

With the contract exchanged, the parties will each need to attend to their obligations under the contract. This will include preparing to transfer all the business assets and licences. Items that may need to be transferred include, but are not limited to:

1. Social media accounts;
2. Website domains and email addresses;
3. The business name;
4. Key contracts;
5. Trade marks; and
6. Liquor licence.

You may need to assist with the lease assignment by obtaining the landlord’s consent and assist with assigning key contracts to the purchaser.

During this time, you should also attend to notifying employees, suppliers and clients (when necessary) of the pending sale based on the relevant terms of the contract.

Settle the Sale

Settlement will occur on a specific date, or once certain conditions stipulated as being conditional for the purchase are completed. Examples of pre-settlement conditions may include the successful assignment of the lease.

On the settlement date, you must prepare all assets and documentation for handover. Meanwhile, the purchaser will need to make payment of the balance of the purchase price, which may vary depending on any adjustments that need to be made for employee entitlements, stock take or other items as stipulated in the contract.

Once final payment is made, you can notify employees, suppliers and clients (as required) that the business has been sold.

Complete Handover and Fulfil Obligations

Just before or on settlement you must provide the purchaser with all the operational documents necessary to run the business.

Depending on the contract terms, you may be required to assist with training before and after settlement. This ensures a smooth transition and must be agreed upon in the contract of sale. You can specify in the contract of sale the type and duration of assistance you will provide.

Conclusion

Selling a business is a complex but rewarding process that benefits from expert guidance. By following the above steps, you can maximise the value of your business, attract the right purchaser and facilitate a smooth transition.

With the right preparation and expert guidance, you can confidently transition your business to new ownership while preserving its legacy and value.

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