Finding buyers and completing the sale of a business

There are a number of things you need to consider if you plan to handle the sale of your business yourself. If you're using the services of an agent or broker, you might still need to handle some aspects yourself. Find out what you can do to make the sales process as successful as possible.

Video: Selling a business

Watch our video to find out more about:

  • the steps involved in selling your business
  • preparing your business for sale
  • making the most of the sale of your business.

Ask yourself...

Before starting the sales process, you might want to:

Creating a sales prospectus or buyer's kit

A sales prospectus (or buyer's kit) helps you to market your business by presenting it in the best possible light to potential buyers. A sales prospectus should:

  • look professional and engaging
  • showcase key information about your business.

It should not include detailed or sensitive financial records or anything that could expose your business to risk.

You (or your business broker) could prepare 2 versions of this kit:

  • basic document with limited information for potential buyers who have not yet been fully qualified
  • document with comprehensive detail for buyers who are very interested in buying your business and have the financial capacity to do so.
Cover of sales prospectus template

Create your sales prospectus

If you'd like to create your sales prospectus yourself, you can:

  • use our editable sales prospectus template to guide you through the process.
  • format the document and add your business logo to match your branding.

Negotiating with buyers

There are generally 3 different categories of buyers. Knowing which type you're negotiating with, will help you understand what's most important to them.

This type of buyer is interested in the numbers of your business. They:

  • usually have access to finance or money to invest
  • look for a return on investment
  • will likely examine your financial records very closely.

They'll be looking for a business:

  • with a good income and recorded growth
  • that will continue to operate successfully with little change or intervention
  • with an existing management structure, so they won't need to recruit or work in the business.

Strategic buyers are looking to buy a business to support their growth strategy. For example, a strategic buyer might be interested in buying your business if:

  • they sell a product similar to yours in a different area and want to expand their business to your area
  • you sell a product that complements their own, and they want to expand their offering.

Strategic buyers are familiar with your industry and are usually the buyers prepared to pay the most. The more your products align with, or compete, with theirs, the higher the price they’re often willing to pay.

Business insiders are people who already know you and your business – they could be family, friends or employees and could have personal reasons for wanting to see it continue.

This type of buyer 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.

Learn more about selling to family or employees.

Qualifying potential buyers

It's important to focus your time and effort on potential buyers who:

  • are genuinely interested in buying your business
  • will be able to afford it.

Not many people feel comfortable with their ability to assess buyers, so using a business broker or a licensed agent is often a good idea.

Tips for qualifying potential buyers

  • Look at the potential buyer's online presence. This could give you some idea of their business focus and experience.
  • Don't share all the information about your business until you've researched and qualified the buyer.
  • Ask the potential buyer to sign a non-disclosure agreement (NDA) before you share your confidential and sensitive business documents.
  • Inform them of a ballpark figure for your business, and assess their reaction. This often eliminates people who simply won't be able to afford the asking price.
  • Politely ask about their financial ability to acquire the business – for example, do they have other investments, or will they be applying for a loan? If you're not comfortable asking, a business broker can help.
  • Ask if they have any experience in running or owning a business. Don't let this be the decisive guide though, as they may be an investor looking to buy a business and plan to employ someone to manage the business.
  • Remember that the desire to buy doesn't mean the ability to buy. Some genuinely interested buyers simply won't have the money.

Due diligence by the buyer

Once you (or your business broker) have qualified a buyer, the buyer will want to conduct a thorough investigation to assess:

  • the value of your business
  • any risks associated with buying.

This is known as conducting due diligence. A time period for completing due diligence is often specified in a letter of intent. A letter of intent is a document that indicates 2 parties are willing to do business.

You'll need to provide the information they need to conduct this investigation. This will include information about your business's:

  • operations
  • processes and procedures
  • financial performance
  • legal and tax compliance
  • customer contracts
  • customer database
  • intellectual property
  • assets.

Tips for preparing for due diligence

  • Along with your solicitor and accountant, review the records you'll be providing to ensure they align with the marketing pitch.
  • Because of the sensitive and often confidential nature of the information you'll be providing to buyers, ask your solicitor to draw up a non-disclosure agreement (NDA) for all buyers to sign.
  • Be prepared to answer any questions potential buyers might have about perceived weaknesses or seasonal strengths in your business. For instance, they may require explanations for times of poor growth or intermittent sales peaks.
  • Inform and prepare your key personnel, as the buyer may ask to talk to them as well.

Preparing documents for the buyer

As part of the due diligence process, buyers will want to review as much of the following documentation as you're prepared to show them. They'll be particularly interested to know:

  • what debts the business has (including, for example, superannuation and tax)
  • the operating costs
  • if the business operates at a net profit or a loss.

While you may have valued your business, your buyer may also want an independent valuation. The documents you provide will help this process. Learn more about valuing a business.

Prepare to provide:

  • profit and loss statements for the past 24–36 months – these records show the net profit after business expenses have been deducted from revenue
  • a balance sheet for the past 24–36 months – an itemised statement that lists the total assets and total liabilities of your business. It demonstrates your business's net worth and how it has increased or decreased over time
  • cash deposit records – evidence of all your payments and receipts, by cash, cheque or credit card.
  • details of bank loan and lines of credit
  • cash flow forecasting information – estimates of future business results
  • business plan and/or strategy documents – showing that you've strategically planned the future growth of the business
  • details of your business's automated financial systems – include training manuals or supplier details of the systems your business uses
  • breakdown of outgoing costs – the money spent on your business to keep it operating, for example, rent and utility bills.

Prepare to provide:

  • utility accounts – past bills for utility connections such as phone, internet, electricity, gas and water
  • supplier accounts – evidence of your contracts with external suppliers
  • insurance details – evidence of your business's insurance policies and the cost for each
  • stock inventory list – a detailed breakdown of the current stock
  • business history – an outline of your business's background with details of the products and services you provide, and the type of customers you sell to
  • asset register for tangible assets – details the business's physical assets such as plant, machinery and equipment. This register would normally be a spreadsheet which includes the date, description, model number, purchase price, current market value or replacement value
  • asset register for intangible assets - intangible assets such as goodwill, intellectual property, patents and trademarks
  • auditing results (if available) – provide copies of any financial, safety, or other audit results, as well as the auditor's contact details
  • industry association details – information on your business's licensing or financial memberships with industry bodies
  • overview of your marketing collateral – a list and/or examples of your marketing material, website, social media accounts, signage, artwork, etc.

Read all contracts and agreements to check if they can be transferred to a new owner at time of sale.

Prepare to provide:

  • client contracts and trading agreements – evidence of your business agreements with clients and other parties, including the remaining terms and financial values
  • employee contracts and agreements – evidence of contracts between you and your staff, including their position description, any performance review documents and payroll information
  • franchise agreement (if applicable) – evidence of your franchise agreement and its terms
  • leases (if applicable) – documents showing the details of leases on your business premises, cars, and equipment
  • work health and safety documents – copies of work health and safety policies, processes and requirements relating to your business and industry (e.g. evacuation procedures and manual-handling processes).

Find out more

Due diligence you should undertake

You should also conduct your own due diligence of the buyer. Selling your business can be emotionally challenging. Most small business owners want to sell their business to someone whose values align to their own. This helps to reassure the seller their customers and staff will continue to enjoy the same experience from the business. In addition to qualifying the buyer, you could:

  • assess their experience of running a business
  • research their online presence to see if any articles, comments or reviews align to the type of person you're happy to sell to
  • find out more about their future plans for the business.

Negotiating the sale

Once you and the buyer have conducted your due diligence, and you're both happy to proceed, it's time to negotiate the sale.

Using a broker, agent or lawyer

A business broker or agent can help you negotiate the sale, prevent issues and streamline the sales process.

It's important to budget for legal fees and broker fees at this stage. You may need to pay legal fees upfront, rather than after settlement of the sale.

Learn more about:

Key negotiation points when selling your business

Selling your business is not just about the sale price. There are other important areas you and the buyers should agree on, including settlement.

Keep the following in mind:

  • The buyer might have trouble securing finance and ask for a longer settlement.
  • You might be in a hurry to leave the business and prefer a shorter settlement.
  • You might not be happy with the potential buyer's plans for the business (e.g. you might think it puts your staff's job security at risk) and decide to wait for a different buyer.
  • You'll have a stronger negotiating position if you can ensure that the business will continue to operate successfully. You could offer:
    • a good handover strategy
    • after-sale training
    • to remain working in the business for 3–12 months paid as a management employee.
  • The buyer might want a guarantee that you won't open another business that will be competition for them. This is known as a restraint of trade covenant. Your solicitor can help with this clause.

You should also negotiate how much deposit the buyer should pay. Typically, a deposit of 10% or more of the purchase price is expected. Even after securing a deposit, your broker or agent can continue showing your business to other potential buyers.

Drafting a purchase agreement

Once you and the buyer have agreed on the sale, the buyer's solicitor should draw up a legal contract specifying the sale details. This ensures that both parties understand what each party is agreeing to provide, when and for how much.

Ask your solicitor to explain the terms and conditions of the contract. You also need to understand what the net price is you'll receive from the sale after legal, broker and marketing fees have been taken out.

As well as the agreed price, contracts for the sale of a business should include provisions to address potential problems that may arise after the sale has finalised, such as:

  • the buyer defaulting on instalment payments
  • the buyer defaulting on supplier or client contracts
  • the seller providing inaccurate or false financial information
  • the seller not actually owning some of the claimed assets
  • significant changes in the business before the sale is finalised.

Handing over the business

After settlement, there's usually a handover process. You'll probably need to plan this well in advance and possibly in consultation with your buyer.

The terms of the handover will be stated in the contract. Business handovers often take place over a period of time to ensure the business can continue to operate seamlessly during the transition.

Some of the steps involved in the handover may include:

  • introducing the buyer to important clients, suppliers and industry stakeholders
  • introducing the buyer to employees
  • training the buyer
  • handing over all keys, alarm codes and security devices
  • providing login details for all software subscriptions and databases
  • notifying utility suppliers (phone, internet, electricity and gas companies)
  • notifying bank, insurer, Australia Post, industry association etc. of the change of owner.

Also consider...