Preparing to sell your business is about more than just putting it on the market and waiting for a purchaser. To make the process as smooth as possible, it’s important to make sure your business is in order and sale ready. There are a few key things you should consider to help you attract those purchasers and ensure a fast and successful sale.
The amount of time it takes for your business to reach the point of getting on the market is dependent on how sale-ready it is. This means that in order for your business to reach the market, you need to have all your affairs in order and have good structural processes and systems in place. To help do this, it is paramount to seek advice from a knowledgeable team of professionals to ensure you are meeting all the requirements for a smooth sale.
One of the key aspects of selling your business is managing expectations and setting these out from the start. This includes timetables and the overall plan for what the purchaser is going to need or do when it comes time to close the sale, and what the outcome of this will be. The seller should also make sure to tie up any loose ends such as assets they wish to retain (motor vehicles, etc.). They will want to do the same for Director and Shareholder loans and understand how these will be dealt with following the sale, whether these be fully repaid or in the form of a dividend. You can see why having a clear plan is important.
When a business is selling shares, it is particularly important to eliminate assumptions and have a plan set in place so that the purchaser knows how much capital they will need, if they are going to access a dividend prior to the transaction occurring, etc. If expectations are not managed effectively, we often see deals falling over at the back end because the offer which was made was based on assumptions that were completely different to what was in the vendor’s mind.
Similarly, when you’re selling a small business or shares in a business, structural considerations are very important. A small business is defined as a business with a turnover of less than $2 million, or where the group assets sit below $6 million. These structural considerations can affect your eligibility to gain access to the Small Business Capital Gains Tax (CGT) Concessions. Any share transfers or movements that you’re doing just before a transaction occurs, or having dividend access shares where you can access profits before and during the trade of that business, will create some complications in terms of accessing those concessions.
These concepts coupled with the legalities of the process, such as having key contracts in place with employees, customers, suppliers, and leasing spaces are vital, allowing you to have a clear plan for all aspects and parties involved.
A final piece of advice, be sure that you are being transparent with the purchasers in order to build a trusting relationship and in turn, a seamless and hassle-free business sale.
This blog is based predominantly on the information given in our Law in Life Series, Episode Five: Preparing Your Business for Sale. Watch the full panel discussion here.
Related blog: The post pandemic business impact
As a business owner, it is important to be a financially proactive business post pandemic, especially from a financial and legal standpoint. Sometimes we find ourselves in a situation that is not looking too good. Do you know what red flags to look out for? We dive into what business owners should be keeping an eye out for and what they should be doing to ensure they are staying proactive when it comes to their business.
Where to start
Being financially proactive starts with having a good understanding of where you are at across all areas of your business and how covered you are for anything that may arise. For example, if your business was heading into financial distress, there are things that you should look at doing from a legal point of view to better protect your position. So, what types of red flags should you be watching out for in this instance? Let’s break it down.
If you’ve got debts that are accruing, they’re not getting paid; one of the things that you can look at is security. Always consider what other options you have available to you in case the business can’t pay for them. There are many things that you can do if this were to happen.
What steps to take
Firstly, there are personal guarantees. This involves registering your interest on the personal property securities register, possibly lodging a caveat. If it’s appropriate in the circumstances, get cash into your trust account before you undertake the work. There are ways that you can secure yourself to make sure that if the company goes into liquidation, you’ve got other options available to you.
Another thing to consider is to make sure that you have a good credit policy. To do so, you have got to be firm with your customers and clients, as a lot of businesses allow things to get too far out of control. Especially when we’re looking at the margin of say one hundred thousand dollars, bad debt could spell insolvency for most small businesses. Businesses should be comfortable talking to customers and clients, when they can recognise they’re starting to lag, perhaps in paying debts or phone calls aren’t getting returned, etc. When you are proactive about it and put things into place earlier on, it makes everybody more comfortable.
It is also a good idea to be looking at your credit terms. You should be looking at what security arrangements you’ve got in place. Don’t put off undertaking that debt recovery process because the longer you leave it, the more likely it is that you’re not going to get paid. Businesses need to understand exactly where they stand going forward, and whether or not they’re going to be able to meet those debts, as the market starts to tighten.
Making sure you know what options are available to you and ensuring you are being financially proactive in how you are running your business is paramount in trying to eliminate any nasty surprises or difficult circumstances. This includes making sure you’re proactively seeking advice when needed by a trusted professional such as a lawyer, accountant, or other financial expert. Of course, things can still happen as a business, but as a business owner, you want to make sure you are as prepared as possible to lessen the affect of any issues that may arise so that you can give your business the best chance of success in the long run!
This blog is based predominantly on the information given in our Law in Life Series, Episode Four: Doing business in the post-COVID world. See the full Law In Life playlist here
Related blog: The post pandemic business impact
Just like you keep yourself healthy, you must also keep your business healthy. It is important to have a business that is financially healthy to have success over the life of your business, and there are many elements to that. Do you know what key indicators to look for in your business when it comes to your finances?
One of the really important things about small businesses, the business world, and the markets; is to not remain static. No matter how great everything looks on the surface there could be areas within your business that could be changing that you need to be on top of no matter what stage of business you are at. To hit your profitability, you must go into the cash flow planning side of things, for when there are changes such as new competitors in the market, a change in the productivity of your employees, etc.
There are quite a few things to keep an eye on when it comes to your business health. Operations are one of your key indicators. That is something you should be planning for constantly. There are some other areas within the business as well that you should be keeping an eye on to maintain your financial/business health, such as the productivity of your workforce (are your employees productive and generating the levels of revenues that they once were), ensuring all your assets are working as hard for you/the business as they possibly can and looking at the volatility of your revenues as well.
Knowing you are going to make X amount of money coming into your business before you open the doors on a Monday morning is having that real confidence in your business and the revenue that you are generating. But you also need to be confident that your business is producing a return on your initial investments. To do this you need to track and evaluate your business over the long-term with things like your cash flow, KPI’s, etc.
At the end of the day what it all comes down to is profit and loss, but overall, you want to know that you are looking after your customers; That business relationship that you are building up, the staff morale, the repeat business, client reviews. The dollars and cents are great, but what is truly important is checking those reviews and identifying those sorts of opportunities with your customers, because without your customers, your repeat business, your sales/profit, you will have no business to keep healthy.
This blog is based predominantly on the information given by Andrew Paton-Smith from Jazoodle during his appearance on Money Matters – Planning For Business Survival: A Stronger Than My Excuses Show. Watch the full show here