6 Do's and Don'ts When Selling Your Small Business

By H&R Block 6 min read

Whether you're planning to sell your small business or just beginning to consider your options, there's no right or wrong way to go about it. While every small business is different, being clear about your sales process can help you make smarter decisions, minimise your risk and protect your interests. Here are some things to consider when selling your small business:

Plan ahead

Selling a business of any size requires careful planning and considerable action. But it's not as simple as flicking a switch from running a business to selling one. To get yourself and your business prepared – planning ahead is crucial. Start by getting your books in order and making sure your cash-flow is healthy. If you notice any areas of your business that needs attention, you need to address them as they could be deal-breakers for potential buyers. Because the process of selling is time-consuming and can be a distraction from the day-to-day running of the business, putting processes in place can help with keeping the wheels in motion.

Books in order

Your books are essentially the lifeline of your business and any small business owner can vouch that books don't balance themselves. In all likelihood, a potential buyer will go straight to your financials to assess their risk. Books that haven't been properly managed can be a red flag for a potential buyers, so before you even think about putting the business on the market – invest in bookkeeping. As part of the due diligence process, a potential buyer may want to see financial records such as:

  • Profit and loss statements for the past 24 to 36 months
  • Current balance sheet
  • Any financial forecasts and business plans
  • Any bank loans or line of credit loans
  • Details of your business' financial systems and processes
  • A detailed breakdown of the outgoing costs

If you're planning to sell, work with an experienced H&R Block bookkeeper to get your records in order.

The right representative

Starting and running a business are very different skills to selling a business. While you may know your business and industry inside out, navigating the process of sale is an entirely different story. Bad advice can cost you, so always do your research and make sure you find the right person to represent your sale. Whether that's a broker, advisor, accountant, lawyer or a combination of advisors, having the right person beside you can make or break the transaction. As much as you're selling your physical business, there's also an emotional element at play and letting go can be a difficult process. Having a neutral third party can help mitigate that and ensure the process starts on point and stays on track.

Don't skimp on legal advice

The process of selling a business is relatively complicated. With so many moving parts and decisions to be made, it can quickly become overwhelming. In addition to financial considerations, there are a lot of legal implications when selling a business, both from a compliance and financial perspective. When it comes to legal advice, the best advice one can receive is to never cut corners. Always seek professional, reputable advice from a commercial lawyer who understands the ins and outs of selling your business. Not only can the right advice help you get the best price but it can also save you from making a costly mistake once the deal is done.

Don't rush due diligence

As painful as due diligence may be, it's a valuable and necessary process for both parties. The potential buyer has an opportunity to dig a little deeper and understand your business and the opportunity. At the same time, you as the seller can get to know the potential buyer and scope out whether this is the right opportunity before entering into a contract. Both your lawyer and accountant can help with this process.

Don't sell to the wrong buyer

You've poured your blood, sweat and tears into your business so it's easy to get carried away in cashing in on your efforts. Not all deals, no matter the price tag, will work in your favour so it pays to pick the right buyer. Your first offer may not be your best offer so before leaping at the opportunity, make sure you understand what your risks and rewards are. In some cases, business sales can turn sour when the new owner takes over which may leave you without a full payout. Always have a lawyer and accountant evaluate the offer to make sure you know where you stand legally, financially and from a taxation perspective.

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