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Options for selling your business print Print

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Once you’ve prepared your business for sale or transition, what are your sale options? This guide takes you through the various options and discusses their advantages and disadvantages.

This guide follows on from the article Preparing your business for sale or transition which explains the steps you can take to make your business more attractive to a potential buyer or buyers.

  

Considering your options

Once you've made the basic decision to exit your business, it's time to consider your options. These typically include:


1. Pass on or sell the business to family

If this is your decision, the related article Succession planning made simple will help you through this transition.


2. Liquidate the business

In the case of some businesses that have no future viability without the owner (for example a consultancy operated by one person and very much dependent on that person's skills and personality) there may not be much to sell beyond assets such as a client database. Other businesses that might be suitable for liquidation are those with sharply declining profits, outmoded technology (for example, traditional typesetting has been replaced by computerised typesetting) or businesses in a declining industry. If the value of the assets is greater than the potential future earnings, or if it's too hard or impossible to find a buyer with the right skills, then liquidation might be the only option.


3. Management buyout

You may have groomed a certain manager to take over, or you may wish to sell the business to all the employees in a combined management buyout. There are a number of advantages in selling to your employees. Firstly they know the business, and that is likely to make the transition easier and quicker, since you will likely not have to prepare the same level of documentation you might for an external buyer, or undergo a protracted 'due diligence' period. Secondly, a management buyout is more likely to result in continuity for the business and stability for all the staff than sale to an outside buyer. It avoids one of the challenges associated with all sales: the possible loss of key staff that could diminish the value of the business in the buyer's eyes. Thirdly, you are not as likely to be required for a transitional period of 'hand holding' or be called in for advice on problems, leaving you free to move on.

A disadvantage of management buy-outs is that the seller typically has to leave finance in the business, or sell the business in stages. However, this often applies to sales to outside buyers as well and the resulting on-going income stream from the business could well suit your needs as a seller. In addition, you might feel more secure about the stability of the revenue stream if you sell the business to managers in whose abilities you have confidence rather than a relatively unknown outsider.
 

4. Sale to another company or corporate

Selling your business to another company (perhaps a complementary business or former competitor) is the option most likely to result in you getting a good price and being able to walk away with no further financial ties to the business. However, it's often the option that requires the most preparation and work on your part, since businesses or corporates will expect a professionally prepared and presented business, and they are also more likely to insist on a thorough 'due diligence' process before the sale is ratified.

Selling to another business or larger business often results in the seller being offered a contract (for example, a one-year or three-year contract) to stay on as chief executive and ensure the continuity of the business. Alternatively the seller might be asked to sign a 'restraint of trade' clause.


5. Sale to a private buyer

Many businesses end up being sold to outside buyers. The key point here is that you need to check the buyer's credentials as much as they need to check yours:

  • Are they serious or do they have the financial capacity and experience? You could ask your accountant to help you check this point, as some 'buyers' turn out to have little in the way of financial means, but many preposterous ideas about how you could sell them the business for very little.
  • A serious buyer should be able to supply you with a CV detailing their business track records. They should have the appropriate business skills and experience. There is little point in negotiating with unsuitable buyers since most sales involve the seller leaving money in the sale, and you need to ensure that the business will survive and prosper under new management.
  • You also need to be aware that 'buyers' might be scouting the business for a competitor, although this is more difficult to check.

 

Confidentiality agreements

Ask everyone connected with the sale to sign confidentiality agreements since premature leakage of the news could:

  • Jeopardise staff retention or morale.
  • Damage other relationships.
  • Cause lenders and suppliers to withdraw or tighten loan and credit lines.
  • Give ammunition to the competition.


Releasing information in stages

Another way to safeguard confidentiality during the sales process is not to release all the information on your business at once. You could instead release the information in stages, starting off with a one-page document outlining the business and your asking price. A series of meetings, during which you progressively reveal more about the business, allows you to assess and qualify the buyer as genuine.

   

Finding suitable buyers

Advertising your business

Before you advertise your business for sale, consider the possible effects. There are a number of good reasons for not broadcasting the fact that your business is on the market. The first is that it can cause morale problems among staff. The second is that it could alert suppliers and lenders that the business is for sale and cause them to tighten or withdraw lines of credit. A third reason is that it could hurt the business's image in the marketplace. For instance, customers might interpret news of a sale as the business failing or that the owner(s) have lost interest in the business. Larger customers and corporates might be tempted to exclude the business from future tenders or projects on the grounds that continuity is uncertain.

For these reasons, owners that do advertise their businesses for sale in local or national newspapers or industry journals tend to do so in general rather than specific terms, not giving any contact details, but requiring interested purchasers to respond through a third party (such as an accountant). Depending on the nature of the business, however, this does not always guarantee that the process can be kept confidential (for instance, if your business is well-known or prominent in an industry or area).


Accountants and lawyers

Many businesses change hands without ever being advertised. Buyers come through personal contacts, through word of mouth, and through accountant or lawyer business networks. You can also use your accountant and lawyer to pre-qualify buyers. There will obviously be a charge for this service.

  

Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit anz.co.nz/business
Visit your nearest ANZ branch

   

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