- For retail SMEs, organise your store arrangements and check your intellectual property arrangements and supply arrangements.
- For service-based SMEs, check your office space arrangements, your intellectual property arrangements, and client agreements.
- For general SMEs, make sure you know the ownership structure of your assets, obtain an independent business valuation, and that your business is compliant with local authorities and laws.
Selling your business can be a very emotional time, especially if you have devoted yourself to building it up over the years. However, you may finally be ready to take on a new challenge, retire or have found a great opportunity to sell your business. You may even just be thinking about the future.
It’s wise to have an exit strategy as part of your business plan. This helps you to prepare for when you may need to sell it quickly for financial reasons. It is also reassuring to have a plan just in case.
You should regularly check that your business is well organised so that the next step (when the time comes) to prepare for a sale is straightforward. Dedicating some time to organise your business for a potential sale will allow you to identify and fix any issues before they become a major problem. With any luck, you’ll also uncover where the strengths and weaknesses lie and discover some opportunities to raise your company’s value.
You’ll be able to organise your business into the best shape with advice from your accountant and a good commercial lawyer. In the meantime, here are some important tips to get you started. The first three tips apply to all SMEs, while the following sections are for retail SMEs and service-based SMEs.
SMEs: 3 Areas to Organise Before Selling Your Business
1. Know the Ownership Structure of Assets.
When you first started or bought your business, your lawyer and accountant would have advised you on how to structure your assets, depending on many legal and financial risk factors. These risk factors are unique to your situation and may be different from other business owners. Do you have a good idea of the structure of your business assets?
When preparing your business for sale, you’ll need to have a good understanding of the ownership structure of all the business assets, including those that you’ve acquired while operating the business. This is to ensure that all the assets can be transferred to the buyer, so he or she has a complete business to buy.
Make sure that you know which assets are owned in the names of the company, family trust, personally or in partnership so that when contracts for the sale of your business are prepared, your lawyer and accountant will be able to make the correct arrangements.
2. Obtain an Independent Business Valuation.
Specialist accountants can provide independent business valuation reports for you. Arranging for a valuation will give you a very good indication of what your business is worth, so you can clearly see where the strengths are and which areas may need some work.
By having a recent independent valuation, it will give you the confidence to negotiate a fair price and conditions for the contracts of sale. It will also assist you to understand the value of assets that you may not have previously considered important, such as the intellectual property and goodwill.
3. Ensure your Business is Compliant.
Your business will be required to comply with the requirements of certain authorities and regulatory bodies depending on where you operate from and the industry for your goods or services. This would include general matters such as operating with a valid ABN, having good financial records and accounting for GST, through to obtaining and complying with the requirements of industry specific licences and approvals.
You must meet all legal requirements and have obtained all necessary licences and approvals from the authorities. If there are any issues with your compliance, this will cause problems during the sale process.
Retail SMEs: 3 Areas to Organise Before Selling Your Business
1. Organise Your Store Arrangements.
Does your business own or lease the property from which it operates? Which plant, fixtures and fittings within the property are owned by the business, the landlord or a third party? Are there parts of the property, plant, fixtures or fittings subject to a hire agreement, loan security or lease term which requires payment before they can be sold?
Sort out all your property arrangements before selling. You can increase the value of your business by paying any outstanding financial arrangements and releasing the securities from the title.
You can also negotiate with the landlord for an extension of the current lease or inclusion of additional options to renew the lease and obtain a clear understanding of any obligations to redecorate the property. This creates a level of certainty for a buyer about the stability of the business for the long term.
2. Check Your Intellectual Property Arrangements.
Do you have a unique product that’s the heart of your business? Is the creation of that product dependent on the knowledge of key staff members? What would happen if he or she left your business?
It is important to ensure that your business either owns the intellectual property on how to create that product or has an agreement with the owner, which licences the right to use the intellectual property for commercial gain. It is also vital to ensure that the process can be replicated by others using a well-documented procedure.
3. Check Your Supply Arrangements.
A business is only as valuable as its ability to keep trading. Do you have contracts in place with all the suppliers of your goods, and of the services you need from others to keep your business operating?
Make sure those contracts are valid and accurately reflect your current arrangements. To increase the value to a buyer, you may be able to negotiate with your suppliers for better terms within the contracts, including extending the duration of the contract.
Service-Based SMEs: 3 Areas to Organise Before Selling Your Business
1. Check Your Office Space Arrangements.
Does your business own or lease the office space from which it operates? Do you or your employees work from home? Is the physical location of your business office important to its reputation?
Be clear about the office space arrangements to potential buyers. The value of your business will partly depend on the security of the workspaces. If you and every employee work from home, then the buyer would need to plan to continue operating in this manner.
If you work from a leased office space, particularly in a prime location, then negotiating with the lessor to extend the current lease or include options to renew the lease would be valuable.
2. Check Your Intellectual Property Arrangements.
Aside from ensuring the intellectual property and any expertise is transferable or properly licensed, you should also consider restricting your own future actions to give the business the best chance to succeed. Potential buyers won’t be interested if there’s a possibility you may open a new business offering similar services after selling.
You should consider whether, and on what terms, you would agree to a restraint of trade on you from providing similar services in a similar location for a specified period of time to ensure that the buyer has every opportunity for success.
3. Check Your Client Agreements.
Are your client agreements dependent on you or a key staff member supplying the services or can the services be provided by anyone who is sufficiently qualified and experienced? Do those agreements contain clauses allowing you to transfer them to a buyer of your business?
You need to have a very good understanding of which contracts are transferable in the sale and which will come to an end, unless the buyer negotiates directly with the client. You can maintain your clients’ confidence by offering to work with the buyer for a period to help the transition for your clients and resolve any complications that may arise.
Organising your business assets will go a long way to preparing your business for a sale at a fair price and on fair conditions. Understanding the structure and value of your business assets will also guide you as to where to concentrate your efforts to increase value and the attractiveness for potential buyers.
A good commercial lawyer and accountant will be able to help you make any changes to your business which are necessary to command the best price possible. They will also be able to prepare contracts for sale with the most favourable conditions.
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