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8 steps to follow when selling your business

in Business Law by Anthea Digiaris on

Finding the right buyer and selling your business on favourable terms will require both planning and hard work.

It's important to understand the sales process, preparing your business for sale, setting a price, seeking potential buyers, negotiating and preparing a Contract of Sale and other documents, and settling the deal.

1. Determine a Realistic Price Range

If you price your business too high, you'll scare away buyers. If you price it too low, you'll lose out. To figure out a range that is realistic, you should always consult your Accountant or Business Advisor who can assist you in determining the value of your business.

Some valuation methods include:

  • valuation of the business's assets, and then adding in a sum for the goodwill the business has developed.
  • how much comparable businesses in your industry and locale have recently sold for.
  • use an industry formula.

2. Understand the Tax Consequences of the Sale

You should always discuss with your Accountant the tax implications associated with the sale of your Business.  Taxes can take a huge bite out of the money you receive for your business. It pays to know just how big that tax bite will be.

3. Make sure your Financial Information is up to date and in order

The getting-ready-for-sale process includes not only sprucing up your business premises, but getting your figures in good shape. You may be required to provide any potential Purchaser with the financial statements of the Business for the last 3 financial years to show its profitability.

4. Seek Potential Buyers

Are you selling the Business to an existing employee or an unrelated party? You may need to advertise your sale in newspapers and trade publications, and on business-sale websites. Alternatively, you may want to engage a business broker to reach more buyers, or to keep your sale plans from going too public too fast.

5. Negotiate Your Deal

In working out the terms of the sale, some key issues include whether you will sell the business entity or just its assets, what assets you want to keep, and how the buyer will pay you. You lawyer will be able to assist you in negotiating the terms of your deal.

6. Sign a Contract of Sale

You will need to document your deal in writing. The Contract should list and value the assets the buyer is purchasing, list any contracts the buyer is assuming (e.g, leases, franchises, hire purchase agreements etc), and include protections that assure you will get paid the full sale price. You should always instruct your lawyer to prepare the Contract before it is signed to ensure all necessary terms are included.

7. Plan for Settlement

Between the signing of the Contract to the Settlement Date, the parties will need to sign various documents to complete the transfer of the Business to the buyer.

8. File the necessary Paperwork to complete the settlement

After the sale, you should retain a copy of the Contract of Sale and/or any other key sale document as a record of the sale transaction for at least 7 years.

The parties will also need to file any necessary paperwork with any government and/or statutory bodies to ensure records are updated to show the new owner of the business. 

Anthea Digiaris
Associate, Commercial and project Litigation
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