Selling your Small Business
This topic is one that may come up today or in the future for you and your small business.
Some say you should always be planning forward for the day that you sell your business!
There are many steps in the process and I have referenced a lot of this information from www.business.gov.au into this blog for your information.
Are you sure that selling is the right decision
If your business is not profitable, will a potential buyer want it or see the potential in it?
Don’t just think that selling will fix everything. You may just need to speak to a business adviser or other specialist to get the help you need.
Will selling your business help or hinder your financial circumstances? You don’t want to sell and then experience financial difficulties because you don’t have any money coming in.
When selling your business will be smart to gain the help of professionals. These professionals are business broker, accountant and lawyer.
Throughout the process and particularly at the sale end, these professionals will ensure that all aspects are covered. There are always many areas that we as business owners don’t necessarily think about and it is the job of the professional to know what they are.
What’s it worth
You can look at the current market place and see what other similar businesses are selling for.
You can calculate from the return on investment
- The return on investment (ROI) method uses your business’ net profit to work out the value of your business.
- To get your ROI, divide the net profit (before owner’s salary) by the selling price:
- ROI = (net annual profit/ selling price) x 100
- For example, you have a selling price of $200 000 in mind, but want to test your ROI based on that price. You calculate that your business’ net profit was $50 000 for the past year.
- To work out the ROI, you use the formula:
- ROI = (50 000/200 000) x 100
- In this case, your ROI is 25%.
- If you have an ROI in mind, you can use it to calculate the price for your business:
- Selling price = (net annual profit / ROI) x 100
- For example, if you were looking for a ROI of at least 50% for the sale of your business, and your business’ net profit for the past year was $100 000, you can work out the minimum selling price you should set.
- Selling price = (100 000/50) x 100
- In this case, to achieve a ROI of at least 50%, you’ll need to sell your business for at least $200 000.
(Information from business.gov.au)
You can value your assets and goodwill
You can estimate the cost of starting your business from scratch
You can estimate future profits
NOTE: All these areas are highly variable and your business broker should be able to help you to come up with a figure. Make sure that you use a reputable broker who is registered with the Australian Institute of professional brokers.
Finding a buyer
You may find a buyer yourself, as they may be someone you know or that works for you.
If you are using a business broker, they may have an interested party on their books or through the advertising they do for you.
Negotiating the sale and contract
A lawyer usually looks after the drawing, review and execution of a contract for the seller and the purchaser. We recommend www.legalvision.com.au for a fixed price quote.
Are you thinking about selling your business? Contact Kelly to see if you are on the right path moving forward.
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