The Selling Process

The steps to selling your business

By: Aldes

Posted on Dec 01 2015, in Resources for sellers

Aldes Business Brokers has literally assisted thousands of business owners over the last thirty two years to prepare their businesses for sale and achieve a top price. This experience has proven over and over again that:

"If you want Top Value you must provide Top Information"

However this statement must be taken under advisement as there are a few exceptions to this "rule":

  • Within every industry there are certain ceilings in value, which if exceeded unrealistically will chase serious buyers away.
  • The longer a business is on the market, the greater the perception that something is wrong with that business, resulting in the sale price being lower than estimated or perceived market value.

Besides the above two important points, any business broker will tell you that so often sellers do not get their asking price for the simple reason that they did not prepare their business for sale. Herewith the steps you need to follow in order to prepare your business for sale as well as the parties involved in each step of the process:

1. Compile a business presentation

When compiling a presentation for your business it is important to bear in mind who is going to read the presentation. Obviously in this instance, the presentation will be reviewed by potential buyers. For this reason, we must ensure that we communicate specific salient information that informs the potential buyer about the business, specifically the aesthetics, financial and/or sales information, specifics pertaining to the lease on the business premises, assets and stock levels, staff details and report or business plan information

Person responsible: Owner

2. Select an experienced business broker

Business brokers and their operating methods are governed by the Estate Agents Act. The act requires that business brokers are registered with the EAAB and also holds a current Fidelity Fund Certificate. Business Brokers are also required by law to abide by the EAAB code of conduct in order to ensure the protection of the customer.

Apart from the above Aldes Business Brokers also work as a network of brokers servicing all their clients from a central database.

Person responsible: Owner

Find a broker near you

3. Contract with a business broker

You've put in blood, sweat and tears, long hours and hard work to get your business to where it is. When selling your business it is the time to capitalize on all your input. The person that will assist you in achieving this will be the business broker you appoint. Be sure that you choose your business broker wisely.

There are three ways of appointing a business broker:

  • A set fee for introducing potential buyers.
  • An open mandate, whereby you can appoint more than one business broker or firm.
  • An exclusive mandate, whereby only one business broker / firm is appointed.

Person responsible: Owner and Business Broker

4. Set a realistic price

Aldes Business Brokers have developed a 3-prong approach to valuing a business. They have been successfully using these methods in the market place for the last 25 years. Their methods work so well that a number of industry related bodies including the Institute of Estate Agents and a number of business books are now also promoting these formulas for valuing small to medium sized businesses.

The three methods are:

  • Extra Earning Potential
  • Return on Investment.
  • Payback Period.

Person responsible: Owner and Business Broker

5. Discreetly market the business

One of the main differences between selling property, whether it be residential or commercial or industrial, and selling a business is that when a seller puts his property on the market, he goes for mass exposure with boards and photos in newspapers usually wanting everyone to know in order to obtain a quick sale and hopefully the best price.

In the case of a business owner selling his business, the opposite is true and it needs to be handled in a confidential manner for if it becomes common knowledge the whole viability of the business could be affected. Therefore a good business broker will be very careful regarding the marketing strategy he adopts as well as how he goes about identifying potential buyers.

Person responsible: Business Broker

6. Qualify buyers

Having an agreement in place where the broker works on a commission only basis should mean that he is not going to waste his time and money dealing with potential buyers that do not have the means and skills for your particular business.

The broker should have all potential buyers complete a profile and sign a confidentiality form. Credit checks can also be performed with permission of the buyer.

Person responsible: Business Broker

7. Negotiate the sale

Once a potential buyer has reached the stage that he is interested in the business and now wants to go through the due diligence process, it is advisable to first get some commitment in the form of a Letter of Intent or Memorandum of Agreement signed between the buyer and seller.

This is where a professional broker can be most effective in communicating back and forward between the parties until each point of the agreement has been agreed upon.

Person responsible: Business Broker

What about my staff?

8. Complete due diligence

Due diligence allows the “pre-approved or screened buyer and/or his accountants to investigate every aspect of the business to make sure that what the seller has been saying about the business is in fact true and correct and can be substantiated by audited financial statements and actual business operations, procedures, etc.

Person responsible: Buyer and/or Business Broker

9. Raising finance

Most buyers and sellers are led to believe that financing a business is as simple as raising finance to purchase a property. What a shock awaits them!

Banks do not believe in and will not finance goodwill, this makes up 50-60% of the value. Banks do not view assets as the value they have in terms of running the business but rather what they would recover if the assets were disposed of.

Banks treat stock in trade differently and in most cases will use 100% of the cost value.

  • So important is the lease that you make it a condition of purchase that your attorney first approve the document.
  • Most leases are for a three year period, with an optional further three and a rental escalation of 12 to 15% a year

Person responsible: Business Broker

10. Hand over the business

In the Letter of Intent or Memorandum of Agreement a handover date, normally the effective date, will be agreed upon in and by this stage virtually all the terms of the agreement should have been met. Basically all that should be required is for a complete stock take to be done so that the stock can be correctly valued at a specific date. The buyer and seller will also check all other assets to ensure that they are in good working order. Depending on the agreement, the seller or his representative could stay on for an agreed period of time to oversee the training of the buyer or his staff in all aspects of the business.

Aldes will also introduce you to the landlord in order to secure a new lease or a session of the existing lease

Person responsible: Owner, Buyer, Business Broker

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