What’s the process of selling a business?

Selling your business can be complicated and usually won’t happen overnight. So understanding the process will help the sale go smoothly and give you the best chance of getting the price you want.

 

The steps to selling your business are:

1. Prepare your paperwork and value your business
2. Get a lawyer
3. Advertise your business for sale
4. Get enquiries and have initial discussions
5. Draw up a non-disclosure agreement
6. Create an information memorandum
7. Receive initial offer
8. Draft a term sheet
9. Manage the due diligence process
10. Enter into negotiations
11. Formally accept offer
12. Sign contract of sale
13. Handover your business

 

Step 1: Prepare your paperwork and value your business

The better prepared you are, the easier it will be to sell your business. Before you jump into finding a buyer though, get a clear of why you want to sell your business and what that will mean for your future.

Once you can clearly communicate why you’re selling your business, it’s time to learn what your business is worth. This means getting your paperwork together to understand how to value your business. You’ll need to include information about assets, liabilities, legal documents, profit and loss statements, agreements with suppliers and customers.

This first step can be time-consuming, but it’s worth it to ensure the sales process runs as smoothly as possible. The preparation will also help you truly understand what your business is worth, so you can confidently deal with any buyers.

 

Step 2: Get a lawyer and an accountant

Once you’ve pulled your documents together it’s time to get a lawyer and an accountant involved. They’ll look after your interests from the beginning, draw up any legal documents you need, help with your financials and ultimately help you get the best deal for your business.

 

Step 3: Advertise your business for sale

The next step is to think about who might be interested in buying your business. Suppliers, competitors and even customers are all potential buyers. How will you present your business?

At this stage you’ll want to think like a buyer and highlight why your business might be of interest to them. What are your key selling points? Does your business have growth potential? Do you have well-established links to suppliers and customers?

It’s also worth considering how you’ll spread the word. Advertising online is generally the best way to find potential buyers. A business-for-sale marketplace like SEEK Business can not only help you showcase your business, but also provide checklists, valuation guides and even help write your ad for you.

Remember, on average in Australia it takes 6-9 months to sell a business and the more you rush the process, the more likely you are to get a lower sale price. So take your time and don’t expect it to happen overnight.

 

Step 4: Get enquiries and have initial discussions

Think of this as a ‘nibble on the line’. Someone’s interested enough to ask you for more information. This is when you answer a potential buyers’ questions about your business. If you’ve prepared all your documents, you’ll be ready to give them general information about the business.

This is also your chance to do your own assessment and screen the enquirer. Have they thought about how they might fund the purchase? How genuine do they seem? What experience do they have?

At the enquiry stage, potential buyers are interested in getting additional information about your business. They want more details than what you’ve provided in any ads, so they can better understand what your business is worth.

 

Step 5: Draw up a non-disclosure agreement

Following an enquiry, you’ll want to figure out if the potential buyer is going to be suitable, and whether they have the funds to purchase your business.

At this point, your lawyer can help you draw up a confidentiality or non-disclosure agreement (NDA). These documents tend to be standard templates. They protect you and your business so confidential and sensitive information you share is protected.

 

Step 6: Create an information memorandum

An information memorandum (IM) acts as a brochure for your business. It contains all the financial nuts and bolts, key business information and supplier agreements, helping highlight why your business is a good investment.

This document enables a potential buyer to look at crucial details about your business so they can make a decision about whether they’re really interested in purchasing the business. It can help give them enough information to potentially make an initial offer and move into the due diligence phase of the sales process.

 

Step 7: Receive initial offer

When a potential buyer is ready to take the next step, they’ll make an initial offer on your business.

This is your chance to negotiate on the business deal. The conversations you have at this point aren’t legally binding, so everything from price to settlement date is up for discussion.

 

Step 8: Draft a term sheet

At this stage it’s time for you and the buyer to both agree on what will be included in the final sale.

A term sheet isn’t necessarily a legally binding document, but it enables you both to outline what’s included in the sale. This bullet-point document lets you and the buyer discuss price, along with everything else that will be included in the final sale.

 

Step 9: Manage the due diligence process

Once you’ve started talking price and drawn up a term sheet, the buyer will want to do their due diligence to ensure all your claims and numbers stack up. The buyer will do a complete evaluation of your business and all the information you’ve provided.

This is where your preparation is so critical. All the work you did in the first step will now pay off. With all your paperwork and accounts in order your buyer can proceed with confidence.

 

Step 10: Enter into negotiations

The buyer may stand by their original evaluation, or try to negotiate. It’s important to remember different buyers will perceive the value of your business differently, so make sure you have a good understanding of what you feel your business is worth and why.

At the end of the day, remember that successful negotiations are based on compromise. Go in with an open mind, and you’ll be more likely to walk away with the best outcome.

 

Step 11: Formally accept offer

Both you and the seller agree on a price and on the terms described in the term sheet.

 

Step 12: Sign contract of sale

Your lawyer will draw up a legally binding sale of business contract. This will detail what is being sold, for how much and all the conditions attached.

The buyer will almost certainly seek independent legal advice at this point too. When you both sign the document, the deal is legally done.

 

Step 13: Handover your business

Once the contract has been finalised, the buyer will pay the purchase price and you’ll need to transfer the business to the new owner and meet all the conditions listed in your agreement.

Most business sales will include a handover process to ensure the business is transferred smoothly. This typically takes one to three months, but varies depending on the needs of the buyer, the seller and the business.

 

Remember…

Knowing what to expect before you jump in to selling your business is important. You can’t rush the process, so take your time to work through each step.

Find out the other steps involved in selling your business in our ultimate guide on how to sell a business.