Checklist for the seller
1. Begin in time
In general, the process of selling a business takes around 10 months, but very often it can take over a year. Unfortunately the most common situation on the market is that business sales don’t succeed at all or that businesses are simply dissolved without any attempt to sell them.
The only way to speed up and make sure the sale is made is to invest money, time and expertise in the selling process. Before putting the business up for sale, there are many things that can be done in most businesses in order to speed up and secure the sale, but they take time.
2. Use a professional
Out of all experts, a business broker is the only one, whose main job is successful business sales. Using the broad knowledge, skills and experience of a business broker is recommendable in all business sales or acquisitions. Meeting with a business broker saves time and effort as well as reduces the risks and makes it easier to make decisions regarding the sale of a business.
The first discussions with our business brokers are free of charge, which means you can only win. Our brokers can immediately tell you how you should proceed with the sale or if you should postpone it or completely scrap the idea. You’ll also find out what kind of help you can get, if you need it and how much it would cost.
Without the help of a professional business transfers rarely happen, if at all. As the cost of using a professional is merely a few percent of the whole sale’s value, the relative benefit is huge.
3. Create information, demand information
Collect all the business’ current agreements and contracts, documents, layouts, financial statements etc. from the last three years in one folder, if you can make them fit. A business can’t be sold and shouldn’t be bought before this is done.
The selling process doesn’t move forward if the most important documents aren’t available. All gaps in available information increase the risk the buyer is taking and decrease their will to buy the business or pay the asking price.
If you already have an opinion on your business’ possible selling price, you can test how realistic it is by for instance asking your bank manager what kind of financing they would be willing to provide at that price. Financing a business acquisition is considerably more difficult than for instance financing the purchase of a home at the same price. Before disclosing important information, have the buyer sign a properly written non-disclosure agreement in order to decrease the risk of industrial espionage.
4. Create a realistic strategy
Find out the difference between an asset sale and a stock sale in your case, and what advantages, problems, expenses and taxes they involve. Have a professional make a realistic valuation, in which a probable type of buyer and how they would receive financing for the acquisition is taken into account. Without the aforementioned information a valuation can’t be realistic.
Unrealistic strategies and valuations can easily ruin the whole sale. Big fish are rare, and there’s a big chance that one never comes along. You could get lucky and win the lottery, but for most people that never happens.
It’s worth remembering that a buyer almost always has options, and one of them is to not buy the business and move on with their life. The seller usually only has one product to sell, which means they need to be wise and patient to sell it. Buyers are unlikely to come pouring in, and a sale started with unrealistic demands could ruin the business’ reputation permanently.
A business broker’s valuation is always based on reaching a situation, where the sale is actually possible. If no sale is made, the broker goes broke. This is sure to happen if the business’ valuation is unrealistic. This is why the broker must always strive for realistic valuations. However, the higher the selling price, the more the broker earns. This encourages the broker to find the best possible buyer, who is likely to pay a higher price than other buyers.
5. Good contracts of sale
Writing a long contract of sale is not a value in itself, but a rule of thumb is that if it’s shorter than six pages (or even longer with reduced line spacing) it will surely be missing parts that are integral to a safe and successful sale.
What does the contract of sale say happens if the selling price isn’t paid or the sold machines don’t work? Investigate everything agreed upon in the contract of sale and ask what will be done if what was agreed doesn’t happen.
In addition, you should be fairly sure that at least the most important matters have been put to paper and you understand what they mean in practice. The buyer has a responsibility to investigate and the seller to inform. A business transfer has no consumer protection and it is practically useless to later claim that you didn’t understand what the contract said. A good contract of sale prevents disputes and tells you what to do if surprises occur.
6. Actually let go
The date of signing the contract is rarely the date the ownership transfers. Many times inventories are established before the ownership transfers in order to verify the selling price.
After the ownership has transferred, you should actually let go and give you successor space to work. The owner makes the decisions. The successor should be given space even if a transitional period when the seller is available to business has been agreed upon. The transitional period is important, but it is even more important that control of the business is actually transferred to the buyer.