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How to sell your business

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Andy Brown sold his software business and now spends his days playing golf. Picture: Dean Martin

Selling a business is a particularly complicated process, particularly in the current environment where many businesses are struggling. Investment is difficult and banks are near impossible, what are the keys to getting the best price for your business. The better prepared you are for sale, the better result will be achieved. Russell Emerson has put together this step by step guide.

* Three years before sale

Matthews Steer associate Damian James says business owners must first agree they want to sell - and why and how.

"If you're going to sell to internal staff, that's totally different from selling to the market," he says. "There is less of a process, less information to hand over because they already have access to it."

Then comes the hard work, Ernst & Young transactions advisory service partner Don Manifold says - nailing down the facts and figures.

"People tend to look back to three years' (financial) history and forward one year, and it's easier to sell a business when you see profitability over that time," he says. "Selling profits is easier than selling hope."

PwC partner Michael Browne says an audit may make all the difference.

"You might be of a view you don't need to be audited because you're a private business ... but you need to make sure they are adequately reconciled and your profit is right year-on-year," he says.

"It may cost you $20,000 to $50,000 ... but increasing your multiple (at sale) can add $2 million." It will also reveal the "skeletons in the closet" that might later kill a deal, he says.

* Two years out

Small businesses have a tendency to have messy corporate structures, poor governance and a mix of personal and business transactions.

James says now is the time to clean house, moving the business from trusts and partnerships into one corporate structure and removing all personal assets from the business.

"The sooner you simplify a structure, the easier it is to report on," he says. "Start on it earlier rather than later."

It's also time to think about tax. Capital Gains Tax concessions are lost if a business is sold within 12 months of a new arrangement and stamp duty concessions (depending on the state) within two years.

"Poor tax arrangements can cost you 20 in the dollar if you get it wrong," Manifold says.

Owners should look towards the first separation at this stage, bringing in a manager and stepping back to an advisory role to make sure the business doesn't need you to survive.

* One year to go

Manifold says now is the time to write contracts for all major supply, customer and employee relationships and start the search for a buyer.

Cultivating relationships at a CEO level can ease a deal through but also raise competitive tension that might deliver a 20 per cent premium, he says.

* Six months and counting

It's time to appoint your corporate advisers - lawyers to advise on contracts and accountants to deliver the right reports. Make sure they're experienced in transactions because overlooking completion mechanisms such as accounting for profits between sale and completion or the treatment of working capital can cost dearly.

It should take your advisers about two months to prepare the underlying documents for any transaction including confidentiality agreements, contracts, an information memorandum and the cancellation of director guarantees.

* Four months

It may be tempting to tell staff, customers and suppliers, but hold off until the day the information memorandum is sent out, Manifold says.

"People hate keeping secrets because business owners have good relationships with their staff, but it can be disruptive and affect key relationships."

* Two months to go

Due diligence is likely to take place with one or two months to go and contracts signed with a month leeway.

Browne says vendors need to think about what they're likely to get in cash before signing.

Remember you still need to pay off debt and hand over assets. Do your homework and get good advice, he says.

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