6 Steps to Preparing your Business For Sale

by Vanessa Lovie 4th of January, 2023

Its important to have your business ready to sell well before you place it on the market. Preparing your business for sale will ensure it is ready for the transition to new ownership. The price you can obtain for your business increases dramatically with higher net profits which can come from a well-systemised and well-prepared business.

You don’t want to appear disorganized once the business is for sale and on the market. When a buyer enters the process of due diligence you want to have all the answers so that the sales process doesn't slow down.

Step 1: Get your financials in order!

This will require a conversation with your accountant to make sure you have accurate records for the past 3 years (or more if available). You want to make sure you have a solid understanding of the business's profitability.

If you are running your accounts through software such as XERO or MYOB it's important they are all reconciled and you have completed tax returns for previous years. It is never a good look to have outstanding tax debts when you're selling a business.

Ensure all your debtors are up to date and you have minimal outstanding invoices.

It's a good idea to review your aged receivables and collect any outstanding payments - money in the bank always looks better. Take a look at your payment terms and how long it is taking to collect money - the faster the better.

Payroll is an important element in establishing an appraisal. As a business owner, there may be discrepancies in how you are withdrawing money from the company/business. You need to have a clear understanding of wages/directors' fees. Also, make sure that your employees are taking leave and that all superannuation payments have been made.

A large factor when selling a business is taxes. You need to review with your accountant what taxes you are liable for when you sell this business. This can have a big impact on when and how you decide to sell.

Step 2: Get your Training Documents up to date

As the owner of the business, you would have a large amount of knowledge of the operation of the business. When a potential buyer is looking at buying a small business for sale one of their concerns is that the profits of the business are tied to the owner's connections. So if the owner leaves, so do some of the customers (and profits).

Preparing manuals on all aspects of the business such as operations, machinery, daily tasks, ordering stock, contact lists and so on it will make the handover a lot more seamless. Also, ensure each employee has a detailed job description, so there is no confusion about job roles when the new owner takes over.

The training manuals will also ensure the new owners only need minimal training and then can refer to the manual. This will also make it a lot easier for you to remove yourself from the business.

If you don't have established systems consider creating a Google Site and uploading videos, text, and images that make it easier for people to learn and understand.

Step 3: Business Makeover!

Perception is everything! You want to ensure your business is going to make a good first impression. You want to grab the buyer's attention the moment they enter the premises. Whilst most business sales are based on profits and figures, there is still an emotional element that goes it acquiring a business - especially if a buyer is comparing different options.

Clean and Organized: Take a look around your business premises and make sure it is appealing. It may need a coat of paint or some reorganizing. Make sure it is clean and easy to move about. If you have any regulations to abide by make sure it is all in order.
Over Stocked: Ensure you do not have too much stock on the floor or in the back room. Have a sale to remove any slow-moving stock or return to the vendor if possible (it will also help with your figures!). It also helps if you are selling +SAV as they will have less stock to pay for.
Unused equipment: If your storage room is full of old tables and chairs, spare parts, bits and pieces- sell them!

Step 4: Business Relationships and Contracts

Ensure that all of your business relationships are well organised. Its a good idea to ensure all the contracts have been read so you understand any issues that may arise. The lease agreement is extremely important when selling a business, especially in the hospitality and retail sectors.

Documents includes Suppliers, Clients, Property Managers, Associates, Marketers, Website Developers, Accountants, Lawyers, OH&S, Workcover, Compliances, ABN, Business Registrations, GST and so on.

Step 5: Sellers Memo

During the process of Due Diligence, the potential buyers will want to know more information about the business they are buying. All of these details can be outlined in a seller's memo. It is basically a marketing document that outlines the details of your business and what is included in the sale (but not everything!).

Step 6: Legal Documents

When selling your business you are going to need a solicitor to assist with various documents such as an NDA, term sheets, contract of sale etc. It is best to speak with them to prepare a general confidentiality agreement that can be given to potential buyers to sign before releasing any more information. A draft contract of sale should also be prepared.

Once all of these items are in order, you are now ready to sell your business. By being prepared you will appear more organized to potential buyers and this will increase their confidence in buying your business.

Due diligence is a long process and a buyer will investigate all elements of you business - so its best you are prepared if you want the sale to go smoothly.

The next step is to obtain an appraisal so you can advertise and sell a business!