Deciding what’s for sale
When you sell a business, you usually need to make decisions about precisely what you’re selling. Ask yourself:
- Do you want to sell the business outright, all the assets or some of the assets?
- Which assets (if any) don’t you want to sell?
- Are you looking to sell the intellectual property (IP) associated with the business?
- If you own both the business and the property (freehold), will you include the property in the sale?
Using intangible assets to add value
Establishing what exactly is for sale will help you accurately value your business. Often, the sale price of a business is actually more than the total value of the tangible assets being sold. Intangible assets such as goodwill and IP can add significantly to the value of your business and shouldn’t be ignored when deciding on a sale price.
You should take steps to protect your IP so you can get the best possible payment for it when you sell your business.
Finding and qualifying buyers
Before you advertise your business for sale, it’s a good idea to tell your employees, and perhaps even your trusted clients, suppliers, distributors and manufacturers. This helps to build goodwill as you are not selling the business behind their back, and you may even find a genuine buyer in this group.
To avoid people making assumptions about why you’re selling, and what this means for the health of your business, you could:
- test the market by putting out feelers, but only to people you know and trust (such as family members)
- advertise widely without using the name of your business
- use a reputable business broker who should already have a list of contacts and can advertise your business using their trading name rather than yours.
Types of buyers
Buyers generally fall into 3 main categories:
Financial buyers
Financial buyers are interested in your business’s cash flow. They’ll usually be individuals or another business with money to invest. They want a return on their investment but won’t necessarily want to be involved in the daily running of the business.
This type of buyer is likely to examine your financial records very closely. They’ll be looking for a healthy business with recorded growth that requires little change or intervention to continue operating successfully.
Strategic buyers
Strategic buyers are looking to acquire your business to make it work as part of their own business strategy. For example, a buyer who runs a similar business to yours in a different area may want to acquire your business to remove competition.
Also within this category is the buyer who is in a similar business but who is not a direct competitor (perhaps you sell a product that complements their own business).
Strategic buyers are usually the buyers prepared to pay the most for your business. The more your products are aligned with or compete directly with theirs, the higher the price they’re often willing to pay.
Business insiders
These buyers are people you know – family, friends or employees. This type of buyer knows a lot about your business already and could have personal reasons for wanting to see it continue.
They might be willing to pay more for your business than an outside financial buyer but they’re also less likely to have the required capital for outright purchase.
Qualifying potential buyers
Although potential buyers may show interest in your business, you’ll need to sort out who’s really interested and who’s just looking. This is known as qualifying buyers and it’s very important as you don’t want to spend time and effort promoting your business to people unless they’re really interested. A key element of qualifying buyers is finding out if they actually have the money to buy your business.
Tips for qualifying potential buyers
- Don’t give out all the information about your business straight away. You don’t want to waste your time or provide detailed information to parties who aren’t serious.
- Inform them of a ballpark figure for your business, and then assess their reaction. This often eliminates people who simply aren’t realistic about the price.
- Politely ask about their financial ability to acquire the business. Many people don’t feel comfortable asking others these types of questions and this is where business brokers can help.
- Ask whether they have any experience in running or owning a business. Don’t let this be the ultimate guide though, as they may be an investor looking to buy a business, intending to employ managers to attend to operations.
- Be aware that the desire to buy doesn’t mean the ability to buy. Some genuinely interested buyers simply won’t have the money.
Not many people feel comfortable with their ability to assess buyers, so using a business broker is often a good idea.
Creating a buyer’s kit
A buyer’s kit helps you to market your business by presenting it in the best possible light to potential buyers. A professionally presented buyer’s kit gives buyers key information about your business without including detailed, sensitive financial records or anything that compromises the value and goodwill of your business. The kit is a tool to help you sell your business, not an instrument that exposes your business to risk.
What to include in a buyer’s kit
- Executive summary
Include 1 or 2 introductory paragraphs about the business. Be positive and enthusiastic. Outline briefly what the kit contains. - Business information
Include a brief history, detail the structure of the business, and outline key achievements and the core reasons why your business is successful. Include maps and photographs where relevant. Touch briefly on your reasons for selling. - Employees
Detail how many and what type of staff the business has. This doesn’t mean describing specific people. Just briefly outline the different roles and departments within the business. - Products and services
What is your core business? Explain in some detail the goods and services your business provides and how you market them. - Customer demographics
Who are your customers? What do they buy and where are they? Is your customer base staying constant or is it growing? - Sale price and terms
Give an indicative price and a general description of how you arrived at this value. Indicate any terms that are non-negotiable. - About your industry
What are key points of interest about the industry and where is future growth expected? How does your business fit in with these expected growth areas? Who are your competitors and how does your business compare? - Assets
Detail the business’s assets and illustrate with photographs where appropriate. Don’t forget intangible assets such as goodwill, patents and trademarks. - Future directions
Talk about strategic goals of the business. Potential buyers may be looking for evidence that the business has direction and growth opportunities. However, to protect business opportunities, it’s a good idea to talk in general terms and not give away too much detail. - Financials
Build a clear picture of the business, summarise the history and provide an accurate financial forecast.
You (or your business broker) could assemble 2 versions of your buyer’s kit – one for buyers you’ve only just qualified, the other for buyers you’ve assessed as very interested in buying your business and who have the financial resources to do so.