There are many reasons why people sell their businesses despite being on the established level. For some, it is time to retire. Therefore, they will no longer assume any position within the company and instead leave the work in other people’s hands. Meanwhile, others simply seek a greener pasture in life. But to make their decisions work, they would have to abandon the business. However, no matter what the reason is, there are things owners should consider before selling their businesses, and here are some of them.
1. Company’s Worth
The very first thing an owner should consider is the company’s worth. Most buyers will not pay the amount you want if the business is not worth much or if there is a reason for selling it. Therefore, to get the right price, it is wise to have a business evaluation from a professional. They will conduct a series of tests and try to get the best value for it. Asa result, the owner should have a few options to choose from if the time comes to sell.
2. Elements to Sell
There are two methods owners can use in selling their business: assets or stock purchases. Assets purchase is reasonable for those who don’t have much capital because some part of the business is required to be purchased separately. However, the stock purchase is advantageous for those who have the money for it because the whole industry is sold.
When the company is being sold as an asset, there will be many particulars to consider. For example, the company must have a specific business value, a good reputation and credible profits. Apart from that, other various factors need to be carefully considered. Meanwhile, the stock purchase is a process wherein the owner gets compensated through shares. It is the most common way to buy out a business.
3. Letter of Intent
Having a letter of intent to sell a business is quite essential. It is an agreement that dictates how the owner and the buyer should handle the transaction. Some of the most critical elements are the price, what percentage should be for each, when and how the payment should be made and many more.
After sending an LOI, the seller will grant the buyer permission to observe, investigate, and learn more about the company they will buy—also called due diligence. However, the LOI also legally binds the buyer to remain silent about the business and its details if the sale does not go through.
4. Due Diligence
Once the LOI is signed, the buyer will have the opportunity to examine the company they will buy. This process is called due diligence. A third party outside the buyer usually carries it out. There are a series of tests that the buyer will run and examine in the business. However, the trials included will depend on the buyer.
5. Payment Agreement
Lastly, the seller and the buyer should develop a payment agreement to outline the process of how the buyer will make the payment. By using the payment agreement, both parties can ensure they are in a safe transaction. Buyers should pay the money in instalments to avoid the seller from being left in the middle of the transaction.
Selling a business does not come without any hassles. Thus, the seller must be aware of the things they should consider beforehand. Having first-hand knowledge about the process will help them make their decisions.
Bickell and McKenzie is a law firm dedicated to providing conveyancing services in Redland Bay. Our priority is to help clients look forward to selling or buying their properties, assisting them throughout the process, and securing a seamless. Meanwhile, we also help ensure a business sale for clients wanting to put their businesses up for sale. Learn more about conveyancing today by contacting our team.