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Checklist for selling a business and valuable tips

Selling a business will require planning to make sure you receive the best possible price. You will need to understand your obligations before selling your business. Generally, selling a business involves the following steps: Determining whether selling is the right option To avoid spontaneous decision, it is recommended to double check yourself by answering the following questions:
  • Do you really want to sell or if you just need a break from your business?
  • Have you considered options of hiring management services?
  • Do you have the support of family and friends for your decision?
  • Have you checked with market conditions and confirm it is a good time for selling?
  • Will you money from selling your business be enough to support yourself until a new income source is secured?
  • Is there any restriction from trading in a similar business once you have sold?
  • Have you fully understood the implications of selling, commercial laws by consulting your financial adviser, accountant or business law attorney?
Preparing your business for sale. Ideally, you will begin preparing for sale well before you put your business on the market. This could include:
  • Making sure you document processes and policies, making it easier for the new buyer to operate the business.
  • Ensuring employees have documented job descriptions.
  • Obtaining written agreements from suppliers and review contracts to make sure they don’t expire during the sale.
  • Selling obsolete or slow moving stock.
  • Reviewing plant and equipment and selling anything not required.
  • Making sure premises are well presented.
  • Reviewing your lease agreement to ensure it doesn’t expire during the sale and includes provision to transfer the lease to a new owner.
  • Collecting outstanding debts and paying your creditors.
  • Obtaining audited financial statements for at least the previous three financial years.
  • Reducing employee leave liabilities by encouraging them to take leave, if possible.
  • Potential buyers will want to undertake their own due diligence into your business.
However, it is a good idea to prepare a buyer’s information pack outlining key information about the business and what is included in the sale. As a general guide the pack should include:
  • Confidentiality agreement
  • Description of your business
  • Customer or client profile
  • Industry information including how your business performs against industry benchmarks
  • Detailed list of business assets and their value – these may include documented procedures and systems, plant and equipment, stock, intellectual property, client list, lease information, employees’ skills and qualifications, key business relationships and contracts.
  • Testimonials from suppliers and customers
  • Audited financial statements for at least the previous three financial years
  • Offer and acceptance form
  • Contract of sale.
  • Setting the right sale price.
Determining the value of your business can be very difficult. You may want to obtain advice from your financial adviser, accountant or a registered business broker with experience in selling similar businesses. Generally businesses are valued using one of the following methods. Generally businesses are valued using one of the following methods.
  • Return on investment (ROI): This is the most common method for valuing a business. The following formula is used to calculate the selling price:

Sale price = (net annual profit before tax x 100) ÷ ROI percentage

  • Asset value: This method adds all the assets of the business together to determine its value. Assets may include stock, plant and equipment, property, vehicles, furniture, intellectual property, established client list and goodwill. The following formula is used to determine the asset value:

Sale price = assets of the business + goodwill

  • Market value: This is most commonly used to value professional practices such as legal, veterinarian or insurance brokers. It is rarely used to value retail businesses. The following formula is used to determine the market value:

Sale price = turnover x industry multiple

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