Selling your business in Perth, or anywhere in Western Australia
Advice on preparing your West Australian business for sale from Perth’s leading business brokers
When should you consider selling your business? Ideally, at least three years before you want to walk out the door for the last time.
While that’s not always possible – and we can still help you even if the you have an urgent need – if you can plan ahead, start collecting the information a prospective buyer might want, and have your accountant prepare a set of accounts that present the business in the best possible light (while be totally truthful, of course) it’ll make it that much easier when the time comes to list it for sale.
Most buyers (and their accountants) will want to see the previous three years Profit and Loss Statements, so if your accounting is not up‐to‐date that’s the first thing to rectify. Contacting a broker as soon as you’re thinking about selling, even if that’s some time in the future, will help you in two main ways.
- You’ll be able to get an initial valuation, so you’ll have a rough idea of what your business is worth. This is a free service.
- Your broker will be able to work with your accountant to present a set of books that will help answer all the questions a prospective buyer may have, thus reducing the time from listing to sale.
This early planning phase is sometimes called an “exit strategy”. Exactly how long this will take will depend on a number of factors:
- How quickly you want the business sold. Some vendors need to make a quick exit due to a sudden life change. It’s especially important to have a broker assisting you in this instance, because sellers are more likely to make mistakes when under pressure.
- The state of the market for your business. Most industries have cycles. Obviously retail sales go up prior to Christmas, during the New Year sales, prior to Mothers’ Day and on similar occasions. Depending on the retailer, sales may decrease during winter, or summer. The same can apply to manufacturing, wholesale and, perhaps to a lesser extent, service businesses. An experienced broker will know when is the best possible time to put a
business such as yours on the market.
- The state of your record‐keeping, and in particular your accounts.
- How close it is to the end of the financial year. Sometimes this is a factor, especially if sales were down three years prior to the current year but have improved and been steady since. By waiting till the new financial year (assuming it’s only a few months away), that year can “drop off” the three years Profit and Loss presented to the buyer.
- Whether or not your business is ready for someone to simply step in and take over – often someone with far less industry experience than yourself. Sometimes your broker will advise a business owner to hire a manager to run the day‐to‐day operations, as it would be unlikely to find a buyer with the same skill‐set that the seller possesses. At other times a business might be expecting to sign a major contract in a few months – and strong forward orders are always going to reassure a buyer they’re investing in a secure enterprise. Your broker will be aware of these factors, and will work with you to create an exit strategy that maximises your business’s value while meeting your desire to have the settlement occur by a certain date.
There are, essentially, four steps to selling your business starting with a decision to sell through to accepting an offer. These apply whether your business is a major manufacturer or a one-person service operation:
Step 1: Deciding to sell
Selling your business will change your life so it’s wise to consider all the implications before you do. Some sellers want to ease into retirement, so they offer to remain with the business as an employee after settlement. This is often welcomed by buyers, both for its practical value and because it gives a much longer period for the outgoing owner to introduce the new owner to everyone associated with the business (a post‐settlement handover period of a few weeks is standard in most sales agreements).
Step 2: Preparing your business for sale
Once the business is on the market there’s often very little time to change anything, and it’s almost impossible to implement major changes such as hiring senior staff or installing new plant and equipment because you can’t be sure those processes will have concluded by the time the buyer is ready to settle.
Poor preparation can lead to your receiving less than the best possible price for your business.
Here’s a “to do” list, based on the experience of our professional brokers:
- Document the policies and procedures that exist as unwritten rules.
- Systemise the various functions of the business and create a procedures manual. Both these steps will help to reassure a potential buyer that they’ll be able to operate the business in your absence
- Draw up position descriptions. Each employee should have a clearly defined role, and a set of tasks and procedures to perform which leads to measurable outcomes.
- Sell all your obsolete or slow‐moving stock. This will both improve your sales figures, and eliminate disputes about the value of inventory during the sales process.
- Also sell off any redundant or obsolete plant and equipment, machinery, spare parts, and scrap.
- Try and see your premises as a potential buyer would. Clean up, maintain, and even paint the premises where necessary. Ensure they comply with all regulations, both state and council.
- Ask your staff to take their leave and other entitlements prior to the sale, otherwise the sale price may be reduced by the value of their entitlements.
- Unless you want to keep the sale confidential from your employees, discuss which ones are prepared to stay with the business. Retaining key employees is an important selling feature, so handle this process carefully. Our brokers have helped hundreds of sellers through this scenario, so approach them for advice.
- Review your leases and ensure they’re not about to expire, or require renegotiation during the time when you’re planning to sell the business; although if a business can be relocated with minimal fuss and expense, this can sometimes be a positive point for a new owner. Again, discuss the options with your broker. Every professional broker has first qualified as a real estate agent, so they’re comfortable with the negotiation of leases.
- Document the key business relationships, such as with suppliers and customers. Ideally, convert any verbal agreements into written ones, which will make your business look stronger and build confidence in potential buyers. Again, examine existing contracts to ensure they will not expire or require renegotiation just as a new owner steps in.
- In addition to working with your broker and accountant on the financial reports, you should also collect all payments that are overdue from your clients, and ensure you are not late with payments to your suppliers. This will create a positive impression of the financial strength of your business. If you don’t have an accountant (as opposed to a bookkeeper) then check our list of accountants with whom we regularly work.
- As well as your Profit and Loss statements, it’s helpful to have monthly sales reports to demonstrate to the buyer both your ability to monitor and manage performance and that any seasonal fluctuations are just that.
Step 3: Setting the right price
Invariably, a seller wants to set the highest price the market will bear so that they’re rewarded for the years of hard work they’ve put in, while the buyer wants the highest future profitability for the lowest possible price.
That’s normal in any transaction, and an experienced business broker will be able to liaise between the two parties and their accountants and ensure that both are satisfied with the deal eventually reached. Often, a buyer can be convinced to meet the asking price simply by making a few adjustments to other aspects of the offer; sometimes, we’ve even had buyers offer more than the asking price in order to ensure they’re not outbid.
A professional valuation will help reassure both seller and buyer that the price being asked is fair, and grounded in fact.
Business Mergers and Sales are licensed valuers and can objectively assess your business’s value. This is a free service, so contact us for a no‐obligation appraisal.
For information on the factors that may affect your valuation and on what a buyer will be looking for, have a look at our buyer’s information section.
Step 4: Making the sale
Often, someone who wants to sell their business will skip ahead to this part, thinking they can do it themselves. That’s generally not the case, for two reasons.
First, as we’ve outlined above, preparation brings rewards, both in time saved during the sales period and in a higher selling price than you would otherwise achieve.
Second, selling your own business requires specialist skills and resources in valuation, advertising, negotiation and sales. And while this is going on, you have the ongoing demands of running your business.
Simply placing an advertisement in the paper, or on a generalised website, will result in you receiving either hundreds of replies (if your ad makes the business sound far better than it is) or very few (if you’ve been too cautious). It’s also easy, during any part of this process, to inadvertently fail to comply with the law, or to make a claim that a buyer might later say is misleading.
Too much is at stake to ‘wing it’. We advise you consult, at a minimum, your accountant and a licensed business broker. The broker will usually more than pay for him or herself by assisting you to present your business in the best possible light, thus achieving the price you want, and by helping you avoid potentially costly pitfalls post‐sale.
Contact Business Mergers and Sales for an obligation‐free discussion about how we can make selling your business a stress‐free but highly profitable venture. Or enquire about our exclusive three stage, guided, pre‐sale consultancy system in which an experienced broker will work alongside you to ready your business for sale in the near future.