How to sell, why you’re selling, to who and for what price are key factors when selling a business.
1.0 SALE PRICE
The price a business sells for is what the Seller and Buyer agree to. Until then price can only be approximated based on expert opinions, in turn normally based on comparable sale prices, ROI – Return on Investment, Profitability, etc.
In New Zealand business brokers are licensed under rules requiring them to:
Provide the Seller they act for with a realistic current market sale price appraisal, with a description of the method of appraising.
Advertise an asking price that clearly reflects the Seller’s expectations
This is to ensure that there is clear communication between all parties (Seller, Broker, and Buyer) about the expected sale price. The appraisal is based on ROI (Return on Investment) from owning the business, based on the profits expected to be earned, for the Tangible and Intangible Assets excluding Stock. Prices are normally advertised as an asking price + stock.
Most SMB (Small and Medium sized Businesses) are Asset sales.
On the business assets sale agreement the total sale price is broken down into 3 parts – Tangible, Assets, Stock in Trade, and Intangible Assets.
Tangible assets are the physical assets needed to operate the business e.g. premises, premises fittings, equipment (including machines and vehicles).
Stock in Trade are the products (including the raw materials for making the products) sold by the business.
Intangible assets represent the balance of the total sale price other than Tangible assets + Stock. That includes intellectual property, contractual rights, and goodwill. It is the agreed sale price difference (from Tangibles and Stock) for the prospects (opportunities and threats/risk) of the business to maintain, exceed, or reduce the profits and ROI of the business.
Business sales (in full or in part) can also be share (rather than asset) sales.
2.0 HOW TO SELL
Tell Prospective Buyers what’s for sale at what asking price.
Identify the assets being sold, Tangible, Stock, and Intangibles.
Describe the opportunities and threats in and of the market and the strengths and weaknesses of the business assets regarding their effect on ROI.
Tell them the costs and benefits of owning the business, including why the business will continue to sell and profit by how much, the surety of continued ROI and investment payback.
2.1 IMPORTANT SELLING PRACTICES
Sooner or later the points listed below are included in what a buyer needs to know from a seller to make a buying decision & most (if not all) of them are needed by a business broker to appraise a market sale price and write an information memorandum or business profile.
Information should be provided to prospective buyers in stages.
Initially, an investment memorandum (business profile for smaller ‘selling a job’ businesses) should be provided, They should detail and/or summarize the information listed below.
More detailed information (e.g. financial statements) should only be provided after serious interest is indicated from someone the Seller will sell to, some information only provided at DUE DILIGENCE stage when a conditional offer to buy the business has been agreed to.
Indicate a sellable or near sellable asking price.
2. Provide consistent facts about what’s for sale.
A list of assets with asking prices
A summary of historical financials, including working capital needed for receivables minus creditors, financial performance based on the Financial Statements and GST returns
Financial Statements and GST returns
A copy of contracts needed for continuing the current going concern business, including leases and employment agreements
3. Provide a strategic outline of the prospects for future ROI.
Provide a reason for selling
Describe the current and future situation’s effect on ROI – from the business assets and operations, including about the business premises, processes, and staff, plant and equipment, products and services, suppliers, competitors
Provide a strategic SWOT (Strengths, Weaknesses, Opportunites, and Threats) Analysis
4. Continue operating the business as usual, in good repair, for continued performance and best future prosperity.
5. Propose an appropriate handover and training period.
6. Propose an appropriate non-compete period.
2.2 APPOINT A BUSINESS BROKER TO SELL
Selling a business is a specialist area so it’s worth getting expert help.
A good business broker should understand how to describe the strategic, management and financial situation affecting ROI that a buyer needs to know to make a buying decision and be licensed to draft an AGREEMENT FOR SALE AND PURCHASE OF A BUSINESS.
Experts specializing only in business strategy and management, or finance and accounting, or law are worth getting help from too.
Help from a lawyer licensed to practice law and give legal advice should be sought before signing a sale agreement. A business broker’s license does not license them to give ‘legal advice’.
It’s worth getting a broker to appraise a current market sale price.
It’s worth getting a business broker to prepare an investment memorandum (business profile for small businesses) with details about your business, that outline what buyers need to know to make their buying decision. The information should be big on facts and forecast opportunities and risks for growing the business.
3.0 Who to Sell to
Buyers may be:
employees — this is known as a management buyout
competitors
suppliers or customers
entrepreneurs
investment groups.
Who Will Buy Your Business? A job-buyer or a general investor?
Finding and negotiating with potential buyers is time-consuming and specialist work, so think about hiring a business broker to do it for you. A broker will know which type of buyer will be interested in your business and how to approach them.
How to sell, why you’re selling, to who and for what price are key factors when selling a business.
The price a business sells for is the price that the Seller and Buyer agree on.
Otherwise, a sale price is an approximation based on the ROI (Return on Investment) profitability that comparable businesses are sold for. For example, a business sold for $2 Million dollars on expected annual profits of $650,000 is sold on an annual 32.5% ROI basis.
Provide the Seller they act for with a realistic current Market Sale Price Appraisal, with a description of the method of appraising.
Advertise an asking price that clearly reflects the Seller’s expectations
This is to ensure that there is clear communication between all parties (Seller, Broker, and Buyer) about the expected sale price. The appraisal is based on the ROI (Return on Investment) from owning the business, based on the profits expected to be earned by the Tangible and Intangible Assets excluding Stock. Business sale prices are normally advertised as an asking price + stock.
Most SMB (Small and Medium sized Businesses) are Asset sales.
On a Business Sale Agreement, the total sale price is broken down into 3 parts – Tangible, Assets, Stock in Trade, and Intangible Assets.
Tangible assets are the physical assets needed to operate the business e.g. premises, premises fittings, equipment (including machines and vehicles).
Stock in Trade are the products (including the raw materials for making the products) sold by the business.
Intangible assets represent the balance of the total sale price other than Tangible assets + Stock. That includes intellectual property, contractual rights, and goodwill. It is the agreed sale price difference (from Tangibles and Stock) for the expected prospects (opportunities and threats/risk) of the business to maintain, exceed, or reduce the ROI profits of the business.
Business can be also be sold (in full or in part) as Shareholder Equity, a share (rather than ownership of specific assets) of ownership of the business ROI.
2.0 HOW TO SELL A BUSINESS
Tell Prospective Buyers what’s for sale at what asking price.
Identify the assets being sold, Tangible, Stock, and Intangibles.
Describe the opportunities and threats in and of the market and the strengths and weaknesses of the business assets regarding their effect on ROI.
Describe the costs and benefits of owning the business, including why the business will continue to sell and profit by how much, the surety of continued ROI and investment payback.
2.1 SELLING A BUSINESS BEST PRACTICES
Sooner or later the points numbered below are included in what a business buyer needs to know about a business sale to make a buying decision & most (if not all) of the points are needed by a business broker to appraise a market sale price and write an information memorandum or business profile that describes the business ROI expectations.
Information should be confidentiality provided to prospective buyers in stages.
Initially, an investment memorandum (business profile for smaller ‘selling a job’ businesses) should be provided, They should detail and/or summarize the information listed below.
More detailed information (e.g. financial statements) should only be provided after serious interest is indicated from someone the Seller will sell to, some information only provided at DUE DILIGENCE stage when a conditional offer to buy the business has been agreed to.
Indicate a sellable or near sellable asking price, a price that the Seller will agree to sell the business for.
2. Provide consistent facts about what’s for sale.
A list of assets with asking prices
A summary of historical financials, including working capital needed (for receivables minus creditors, etc.), financial profit performance – matching what is shown on tax return Financial Statements, GST returns and other reporting
A copy of Financial Reports e.g. Statements and GST returns
A copy of contracts needed for continuing the current going concern business, including leases and employment agreements
3. Provide a strategic outline of the prospects for future ROI.
Provide a reason for selling
Describe the ROI situation – with some form of SWOT Analysis of the market (Opportunities and Threats) and business assets (Strengths and Weaknesses) to earn future ROI.
4. Continue operating the business as usual, in good repair, for continued performance and best future prosperity.
5. Propose an appropriate handover and training period.
6. Propose an appropriate non-compete period.
2.2 APPOINT A BUSINESS BROKER TO SELL A BUSINESS
Selling a business is a specialist area so it’s worth getting expert help.
A good business broker should understand how to describe the strategic business situation, the strengths and weaknesses of business assets to prosper in the market’s opportunities and threats, explain the ROI that a buyer needs to know to make a buying decision, and be licensed to draft an AGREEMENT FOR SALE AND PURCHASE OF A BUSINESS.
Experts specializing only in business strategy and management, or finance and accounting, or law are worth getting help from too.
Help from a lawyer licensed to practice law and give legal advice should be sought before signing a sale agreement. A business broker’s license does not license them to give ‘legal advice’.
It’s worth getting a business broker to appraise a current market sale price.
It’s worth getting a business broker to prepare an investment memorandum (business profile for small businesses) with details about your business, that outline what buyers need to know to make their buying decision. The information should be big on facts and forecast opportunities and risks for growing the business.
Who Will Buy Your Business? A job-buyer or a general investor?
Finding and negotiating with potential buyers is time-consuming and specialist work, so think about hiring a business broker to do it for you. A broker will know which type of buyer will be interested in your business and how to approach them.
The price paid (the investment) for a business should be less than the expected ROI (Return on Investment) from owning and operating the business model and assets.
Buying a business is about investing money for a return, for future profits, and a resale price that exceeds the business purchase price.
The price a business is bought and sold for is the price the Buyer and Seller agree on.
Otherwise, a sale price is an approximation based on the ROI (Return on Investment) profitability that comparable businesses are sold for. For example, a business sold for $2 Million dollars on expected annual profits of $650,000 is sold on an annual 32.5% ROI basis.
The expected future business profits and resale price should exceed (payback) the purchase price after an appropriate amount of time. The higher the ROI, the quicker the payback.
Most SMB (Small and Medium sized Businesses) are Asset sales.
Tangible assets are the physical assets needed to operate the business e.g. premises, premises fittings, equipment (including machines and vehicles).
Stock in Trade are the products (including the raw materials for making the products) sold by the business.
Intangible assets represent the balance of the total sale price other than Tangible assets + Stock. That includes intellectual property, contractual rights, and goodwill. It is the agreed sale price difference (from Tangibles and Stock) for the prospects (opportunities and threats/risk) of the business to maintain, exceed, or reduce the profits and ROI of the business.
Business can be also be sold (in full or in part) as Shareholder Equity, a share (rather than ownership of specific assets) of ownership of the business ROI.
2.0 BUYING A BUSINESS PROCESS
The Seller (or their business broker) should provide the Buyer with the information needed to make a buying decision.
Assets should be identified as Tangible, Stock, and Intangibles along with asking prices.
An Investment Memorandum (business profile for small businesses) should describe how the business model and assets operate to earn the profits claimed & why profits are expected to continue and/or grow under new ownership, explain what makes customers continue to pay the business for their products and services, the strengths and weaknesses of the assets and business model to prosper in the market’s opportunities and threats.,
Proof of claims should be provided e.g. Financial Statements and GST reports proving profits earned.
.
2.1 BUYING A BUSINESS BEST PRACTICES
Sooner or later a business buyer should expect disclosure of the information, seller behavior, and agreement to the points numbered below.
Information should be acquired in stages, starting with an Investment Memorandum (business profile for small businesses).
A business profile summarizes the information listed below. An information memorandum provides more detail.
Further details (e.g. Financial Statements, GST returns and bank statements) are normally provided after serious buying interest is indicated or during due diligence after making a conditional offer to purchase.
An asking price.
2. Consistent facts about what’s for sale.
A list of assets with asking prices
A summary of historical financials, including working capital needed for receivables minus creditors, financial performance based on the Financial Statements and GST returns
Financial Statements and GST returns
A copy of contracts needed for continuing the current going concern business, including leases and employment agreements
3. A strategic outline of the prospects for future ROI.
Describing the current situation of business assets and operations, including about business premises, processes, and staff, plant and equipment, products and services, suppliers, competitors
Providing a good reason for selling
A strategic SWOT (Strengths, Weaknesses, Opportunites, and Threats)
4. The Seller continuing to operate the business as usual, in good repair, for continued performance and best future value.
5. The Seller agreeing to an appropriate handover and training period.
The Seller agreeing to an appropriate non-compete period.
If you’re buying through a licensed business broker, remember their licensing rules require them to:
Act in good faith and deal fairly with all parties engaged in a transaction
Not provide false information, nor withhold information that should by law or in fairness be provided
Not mislead as to price expectations
Not engage in any conduct that would put prospective parties to a sales transaction under undue or unfair pressure
They’re also licensed to draft an AGREEMENT FOR SALE AND PURCHASE OF A BUSINESS
3.0 Getting Technical and Legal Advice & Completing A Business Purchase Transaction
Negotiating a business purchase is time-consuming and specialist work.
A licensed business broker can draft a conditional ASPB (an AGREEMENT FOR SALE AND PURCHASE OF A BUSINESS).
Their licensing rules require them to recommend and give parties a reasonable opportunity to take legal and technical advice before signing an ASPB.
A buyer should seek expert advice – technical and legal for evaluating and negotiating the purchase price, terms and conditions.
An accountant and/or business broker and/or lawyer can be paid to provide advice regarding the price relevant to expected ROI & to help negotiate the purchase price, terms, and conditions.
