Essential Steps for Selling Your Small Business

November 15, 2024

For family-owned and small Australian businesses, making the decision to sell can be both challenging and emotional. However, the right approach can help you navigate this process while balancing emotional ties and the need for business continuity.

Preparing your business for sale

1. Valuation

The first step is determining the market value of your business based on its revenue, profitability, industry trends, and the strength of your customer base. The best way to set a realistic price is to instruct a professional valuer.

2. Financial clean-up

Before putting your business on the market, aim to clear any outstanding debts and check that your records are accurate and up-to-date. Potential buyers will likely scrutinise these records, and a clean financial slate may make your business more attractive.

However, if clearing all debts isn’t possible, be transparent with potential buyers and work with financial advisors to present a manageable plan for outstanding liabilities. This can help maintain buyer confidence despite the presence of debt.

3. Documentation

Organise essential documents, including tax records, contracts, and licenses, as well as your succession plan. Having all these documents in order will help give potential buyers confidence that your business is well-managed.

Finding the right buyer

There are several ways to find potential buyers, and the best approach will depend on your industry and business type. Common methods include working with a business broker or real estate agent. You can also advertise through online platforms, newspapers, trade publications, or word-of-mouth through your network—such as friends, family, employees, or even customers.

Many businesses are sold to competitors who understand the value of your company and may want to avoid seeing it sold to someone else.

Once you find an interested buyer, screen them thoroughly. Flexibility is key when negotiating terms. By standing firm on your key terms but remaining flexible on others, you may be able to create a win-win outcome for both parties. Be clear about the transition period, including how long you’ll stay to help and what support you’ll provide.

Financing options for buyers

Many buyers may need financing to purchase your business. Common financing options include bank loans, venture capital, private loans, or Vendor Financing (Seller Financing).

Bank Loans: One of the most traditional financing methods, where buyers secure a loan from a bank to fund the purchase. Bank loans typically involve a thorough review of the buyer’s financial history and business prospects.
Venture Capital: This option is more common for buyers looking to grow or scale a business rapidly. Venture capital investors provide funds in exchange for equity in the business, but this route is generally reserved for businesses with high growth potential.
Private Loans: Buyers may also secure loans from private lenders or individuals. These loans often come with flexible terms but may involve higher interest rates or risk.
Vendor Financing (Seller Financing): Where you, the seller, provide a loan to the buyer to facilitate the sale. Offering seller financing may make your business more attractive to buyers, especially if they have difficulty securing traditional financing. However, there is the risk that the buyer could default on their payments.

Legal Considerations

Legal and financial advisors are best placed to guide you through tax and legal considerations of selling your business and carry out due diligence.

You’ll need a sale contract covering assets, liabilities, and the sale price, and will also need to update key registrations, such as transferring the business name through ASIC, handling tax obligations (ABN, GST), and transferring any necessary licences.

Ensuring a smooth transition

Transition planning – A well-thought-out transition plan helps ensure your business will continue to run smoothly after the sale. This might include training the new owner or key staff, maintaining customer relationships, and ensuring that suppliers are informed and ready for the change.
Stakeholder communication – Once the sale is confirmed, communicate the transition to your employees, customers, and suppliers, keeping the message clear and positive to maintain confidence in the business.
Post-sale management – Even after the sale, there may be ongoing tasks such as finalising paperwork, handling any remaining liabilities, or assisting with the new owner’s transition. Be prepared to address these challenges to make the handover as smooth as possible.

Closing the deal

Selling a business requires thorough preparation, a solid understanding of buyer financing, and careful transition management. If you’re unsure where to begin, consult a financial advisor for step-by-step guidance tailored to you.

This information is for general information purposes only. The information contained herein does not constitute financial or professional advice or a recommendation. It has not been prepared with reference to your financial circumstances or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice as to whether or not this information is appropriate for you.