How to Sell a Business Privately

Sell a Business Privately – Preparation:

Once you have decided to sell your business, then it is time to get started.

• A. Have clear objectives and set timing goals otherwise before you know it time has slipped away.
• B. Get your financials up to date – it is acceptable not to have the last financial year finished if we are in the first 6 months of the next financial year but anything after that would require some temporary financials to be prepared.
• C. Research other Businesses for sale like yours
• D. Talk to Your Accountant and ensure he/she knows your objectives
• E. Clean up your premises as best you can and take photos

Sell a Business Privately – Valuing Your Business

There are multiple ways to value a business.

• A. Asset Based Business Valuations – (Sell for the value of plant, equipment & Stock)
• B. Book Value/Asset Value Business Valuations – (Assets less liabilities equal owner’s equity value)
• C. Discounted Cash Flow Method – (incorporates future cash flows at a dollar rate of today)
• D. Return On Investment (ROI) Method – (net income divided by the total cost of the investment, or ROI = Net income / Cost of investment x 100)
• E. EBIT Valuation – total value of the business operations (i.e., enterprise value) by the company’s earnings before interest and taxes (EBIT).
• F. Sales Multiple Valuation Method – (level of annual sales and multiplies is by the amount prescribed by the industry in which the business is in)
• G. Price to Earnings Method – same as the EBIT method, with the exception that the after-tax profit will be used in calculations

Other Resources
– https://www.noagentbusiness.com.au/business-commercial-guides/how-to-sell-your-business/setting-your-price/
– https://business.gov.au/finance/funding/value-your-business
– https://www.commbank.com.au/articles/business/how-to-value-a-business.html

Sell a Business Privately – Marketing

If you do not advertise your business properly this could be detrimental to your outcome. If you think by putting one ad on a website/marketplace, then you will be disappointed. You are likely to get a lot of tyre kickers who just want a bargain. Do not mistake your desire to sell to think you need a buyer tomorrow. A strategic marketing campaign is what is best with a combination of good online websites and social media campaigns specifically designed for buyers to search and find you. At any given time there are hundreds and thousands of buyers searching for a business like yours. Make sure you get the right exposure in order to have as many people possible to see your business for sale.

Sell a Business Privately – The Legals

All your legal forms and requirements can be provided by a solicitor and/or an accountant. Be sure to use a solicitor who is located in the same state as your business location.

You will need:

• A. A Non-Disclosure Confidentiality Agreement
• B. Offer-to-Purchase Agreement
• C. Current Lease Agreement
• D. Enterprise Insurance Policies
• E. Business’ Professional Certificates
• F. Existing Vendor/Client Contracts
• G. Employment Agreements
• H. Letter of Intent
• I. Post-Closing Agreement

Sell a Business Privately – Accountant Requirements

Your accountant will advice and be able to provide you with:

• A. Personal Financial Statement (to be completed by buyers)
• B. Seller’s Discretionary Earnings
• C. Seller’s Discretionary Cash Flow
• D. Internal Profit & Loss Statements (dating back two to three years)
• E. Balance Sheet (updated/current version)
• F. Corporate Tax Returns (dating back two to three years)
• G. Employment Agreements
• H. Accounts Payable Reports
• I. Seller’s Promissory Note for Financing (if subject to finance)

Sell a Business Privately – Negotiating & Offers

Negotiating with a prospective buyer is not hard. Some people think that it is and should be handled by professionals, however this is often the case. A desire for someone to buy your business is because of the business type itself, or the fact it is a business that would complement their own business or skills or if your business is so profitable they just have to have it! No one can twist a buyer’s arm and if you get your marketing right, you should have several buyers interested.

The art of negotiating is to be clear with the amount you want, keep it simple, don’t get emotional, be flexible and negotiable.

Further Information here:

https://www.noagentbusiness.com.au/business-commercial-guides/how-to-sell-your-business/negotiating-your-sale/

Sell a Business Privately – Due Diligence

Due Diligence Definition: the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement.

Be well prepared by having all of your documents, financialis, history, current leases, current contracts/obligations and good reasons for a buyer to buy your business. When a buyer wishes to do their due diligence on your company, ideally you will have an Information Memorandum which is an extensive representation of everything to do with your business.

Sell a Business Privately – Settlement

After you have had contracts signed for the sale of your business, there will be a settlement period and obligations from you after the sale. Your solicitor will handle most of the items which would include:

• A. Transferring the business’ intellectual property, if any
• B. Granting a new lease, or transferring the existing lease
• C. Authorising the use of the premises (solicitor may deal with your landlord)
• D. Transferring employees’ details to the new buyer for those employees staying on
• E. Releasing any securities or transferring any licenses possessed by the business
• F. Transferring any utility accounts;
• G. Conducting a stock take if your purchase price is + Stock at Valuation
• H. Transferring existing business contracts with any third parties.