How to prepare your business for sale in 2022

Ensuring your business is in order is integral to ensuring a smooth sale process. Photo / Getty Images

The reams of paperwork, the brokers, the lawyers, accountants and the general pressure of finding a motivated match regularly conspire to make buying or selling a business a daunting task.

But it doesn't have to be that tough. There are a few simple steps you can take to make the entire process far more manageable for everyone involved.

Know your why

ABC brokerage managing director Chris Small said the single most important thing owners should do before selling their business is to know the motivation behind the sale.

"If you want to sell your business understand why [and] what your motivation is," he said.

It is crucial to let the potential buyer know the reason the business is being put up for sale.

There could be any reason for someone wanting to sell their business and once you have internalised your why, the next step is to get ready for the sale.

"Is it because you want more time to spend with the family, is it because you want money or both," Small said.

Up-to-date paperwork

Once you have decided to sell, the next step is to get all your paperwork in order - legal and financial.

"The financial paperwork covers financial statements, which includes your profit and loss statement, the balance sheet and the cash flow for the business," Small said.

The documents should also include your financial statement with sales numbers, records of accounts receivable and payable, inventory as well as things like contracts with existing customers and suppliers, any paintings, trademarks, copyrights, licence agreements, and your employee agreements.

Small said that prospective buyers don't want to deal with a mess and want to see the business in "a nice, orderly and tidy condition".

To get these documents ready Small said it was important to really communicate with experienced accountants and lawyers.

This is crucial because the potential buyers will put in an offer based on a range of things, which could include the value of the assets in your business, its cash flow, gross revenues and annual growth.

Chris Small of ABC Business Sales. Photo / Supplied

The sale price is often a multiple of the business's profit and it is different for every business. The multiple will be considered whether the buyer is an individual looking for an owner/operator role, or a larger organisation searching for strategic acquisitions, Small said.

Once the paperwork is ready you want to have someone who's had experience and helped other clients prepare the businesses for sale.

"Once you've done that, you then come and see the likes of ourselves. We're professional business salespeople," Small said.

Timing of the sale

Deloitte national leader for corporate finance Richard Dorset said the most common mistake people made during the sale process was not taking sufficient time to prepare early to understand their own business.

He said it was particularly crucial for business owners to understand the perceived weaknesses within their organisation.

These weaknesses might be in some of the commercial drivers in the business, problems with the supply chain or even on the administration side of the organisation.

Dorset said that if a prospective buyer identifies a complete mess or a shambles, then this will reflect poorly on the sale discussion.

Deloitte national leader for corporate finance Richard Dorset. Photo / Supplied

He recommends that business owners take time to ensure they've done their housekeeping to present a positive image for the business as a whole.

Confidentiality

Another thing that's important during the process of preparing to sell your business is to be really careful around confidentiality.

Small said prematurely letting your employees or customers know about the sale would be a major problem because this would make people uncertain about their future in the company.

The fallout could include losing staff, customers and suppliers, so confidentiality is very important, he said.

Small said that readying a business for sale usually takes around three to six months, and advises business owners to put in the work to ensure everything is in order.

Finding the right buyer

When you know why you want to sell your business, it'll be easier to narrow down the search for potential buyers. Some people want to sell but they want to make sure their business legacy continues, which includes looking after their existing staff. Hence the motivation of the buyer is just as important.

"It's about finding the right type of person to buy the business - someone who will look after the staff and continue the legacy," Small said.

But if money is a key reason for selling, then you're probably going to be less worried about the type of buyer.

"Sometimes the person likely to pay the most money is not the person the business owner wants to sell to because they might be a competitor for a long period of time.

"So again, it comes down to your motivation ... or some people are motivated to sell because they think their businesses would be more successful under a new owner, who's younger, got more energy, and so forth," Small said.

Using a broker

Finding a specialised broker will reduce a lot of stress, eliminate the window shoppers and help to get the best value for your business.

Barker Business Brokerage director Brett Barker said most people looking to buy a business will seldom contact the owner, instead inquiring through a broker first.

"It honestly sounds like cliche, but using a broker eliminates most of the stress," he said.

"A lot of people won't inquire to a business owner directly, we talk to 50-odd people that have no interest in buying but more so are gaining knowledge from the process - and getting a contract signed is easy, getting through the due diligence is a lot harder and must be managed carefully," Barker said.

Small said researching the type of broker required to sell your business was also important.

"[It is] important that the business broker you appoint has experience in selling similar types of businesses.

"You need to go through a broker who's had experience ... in your industry."