Selling a Business Privately
SUCCESSFUL Business sale requires Knowledge of the Market, and a Competent Business Marketer (PropertyForSaleByOwner.com.au)
“Selling a Business Privately”
If you want to:
- stay away from Broker Commissions
- get wide and rapid access to sites which specialise in business
- know more on how a business is SOLD
- decide if a private sale is right for you,
READ THIS GUIDE
Selling your business can be complex and you must prepare well before it is put up for sale, so use this information to prepare as much as possible. Determining the sale price needs careful consideration and then the method of sale. PropertyForSaleByOwner.com.au is ready to help you through this process and get the best result for you.
What you will save by private sale is the Broker’s Commission. Depending on the sale price and area, these can generally range from 3% to 10% and plus. Once you have valued your business, you can calculate how many Thousands of dollars you can SAVE by Private Sale.
You, the owner, know your business best. You know the market that it services, the clients or customers, the strengths it has over competitors and many small, vital details that come from operating this business over many years. You cannot expect a Broker to be as committed, he has other businesses to sell beside yours.
With a Broker, you are a passenger on their train, one with many carriages. In a private sale, you drive the locomotive and get help where and when you need it. Timing of negotiations and examination of the business, screening buyers, selecting and engaging professional assistance, gaining all interested buyer information, type and method of advertising and more, all remain in your hands, not a Broker’s.
Considerations when Selling a Business
Many methods can be used and it is up to the private seller to judge which is best for their business. Your Accountant is vital in this step as, in all methods, an accurate calculation of business revenue, costs and profit is inescapable. The type and size of business will establish which valuation method is appropriate, as will buyer preference for information before the sale.
There are many methods of valuation which include:
These are assets that are used in the business itself and are NOT the product of the business. They are items like vehicles, office furniture etc. A detailed and itemized list of the assets needs to be completed. If these assets are sold above the depreciated book value, the owner of the business may be liable for income tax.
Goodwill will show up on a company’s books when it acquires another company, and has to pay more for it than the listed book value of its assets. The excess paid is categorized as Goodwill, added to the acquiring company’s balance sheet as an asset, and then depreciated over a period of years. This is capital in the hands of the seller and may have Capital Gains Tax Implications.
Stock in Trade
This consists of:
- Supplies used in the production of the goods for sale
- Goods being produced and
- Finished goods
This is usually valued just before settlement as it must be within 10% either way of estimate put in the contract or the buyer may refuse to buy it all.
An Overview of Valuation Methods
Profit Valuation Method is one way of getting a broad estimate of the value of a business is by multiplying the net profit before tax by a given factor.
The chances a business has of being successful will determine this factor.
Net Profit before tax will be on past financial statements and income tax records.
Asset Valuation Method is most often used by accountants.
It involves assessing the value of the assets that will be transferred on the sale of the business. These may include equipment, furnishings and stock.
Sometimes the value of the business will be greater than the value of the net tangible assets (fixed assets, stock on hand at cost, and debtors less any amount owing to third parties).
The difference is known as goodwill.
To the vendor this will represent compensation for the business’ reputation … the hard work the owner has put in getting the business to where it is today.
To the buyer it represents a premium for the future earning capacity of the business.
Goodwill represents the fact that the business can earn more money than a newly established business because it already has a customer base.
One that is commonly used relies on basing the value of the business on a required Return On Investment (ROI).
Discounted Cash Flow Analysis does take into account future cash flows is Discounted Cash Flow Analysis.
The method is mainly used in feasibility studies, assessing whether an investment opportunity should be pursued or not, rather than as a business valuation tool.
Discounted Cash Flow Analysis is based on determining the present value of a business’ production opportunities or future cash flows.
To compare cash flows from different points in time it is necessary to discount them to their present value … in other words, restating all future cash flows as if they were received today.
It is important to realise that “cash flows” are not the same as “profits” … they are flows of cash in and out of the business.
Non-cash transactions (such as depreciation) may affect profit directly, but them only indirectly (through tax savings) affect cash flows.
In addition, whilst the purchase of fixed assets does not directly affect profits, such expenditure is definitely a cash outflow.
Usually the most difficult aspect of using discounted cash flow analysis is to reliably determine future cash flows.
Whatever Method is used, it is important to use your accountant but, in the end, it is the market which decides what your business is worth.
Valuation by a Professional
This step, particularly for larger and complex businesses, involves some cost but can be worthwhile. PropertyForSaleByOwner.com.au can recommend such Professional Valuers who are familiar with the industry environment, include other matters, such as assets, debtors ad creditors, cash flows and market situation. Their calculation will be a good representation of the actual value of your business.
At this time, you should consider engaging a solicitor to arrange the formal documentation of the sale, so you have all formalities ready before purchasers begin discussions. These will assist in preparing the Contract of Sale and Vendor Statement, both required by Australian Law. There are many aspects best left to a solicitor to assemble, whilst you concentrate on the private sale of your business.
Promoting Your Business For Sale
Selling your business privately means that you must have the widest promotion of the business. These days, that means Online and here PropertyForSaleByOwner.com.au will get your business posted on the best websites to market it to buyers looking for a business like yours. We will help with the listing, Professional description and photographs, amongst other tips. We have experienced and qualified staffs that are able to assist you in this.
Negotiating the Sale of Your Business
As in all negotiations, the buyer is looking for a reduction in the price asked, so be ready for it. Many tricks will be used, such as time limits on offers and very low offers. Ignore them and work out what your lowest price will be, that clears any business debts and delivers a fair value. Remember, the buyer may like your business as much as you do so take this friendly atmosphere to lead to a sensible conclusion on agreed sale price, without a Broker meddling between you both.
Have in mind your aims – the lowest price acceptable and how quickly you want to sell. Then, isolate concerns that keep from getting there with the buyer, without getting stuck on one issue. Often, best to see if you can come back to this point later, and move on to other matters that can be agreed quickly.
Keep a cool head throughout and avoid emotion that will play into a clever buyer’s hands. Compromise is always going to be necessary, usually at a level that satisfies the buyer and also gets a price that delivers you the return that is appropriate in the market conditions.
Don’t set your opening price too low, as negotiation will probably bring it down further – give yourself a buffer to move down, but still get the price you will be satisfied with. Find out what the buyer wants and then move toward that need, without giving up your aims.
Be honest and acknowledge the need of the buyer, even if you can’t meet them. This may open the way to further discussion and concession on their part. Leave matters open if there is no agreement – often a good night’s sleep may bring the buyer back with a more accepting attitude.
Always have your own aims clear, and be flexible as you move toward agreement on them.
Settlement of the Sale of Your Business
Once a price is agreed, turn over the process to your solicitor. They will take the agreed deposit and secure it in their Trust Account, have the Contract of Sale signed by the buyer, manage the other formalities, arrange with you any final inspections required by the buyer and fix a date for the settlement. On settlement, title to the business passes to the buyer.
When the settlement cheque is given to you and the sale has been done – you will have the great satisfaction of knowing you did it, without a Broker and without their Commission.