Marketing Strategy

How to Sell or Buy a Business – a Complete Guide in 2020

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Let’s talk about how to sell or buy a business in today’s world. Deciding to sell or buy a business is a big financial decision, possibly one of the crucial decisions you’ll ever make for any size of business.

There’s no going back once you put your signature on the dotted line.

When it comes to buying or selling any business, many people are overwhelmed by the complexities of the procedure and simply don’t know where to start.

Business sales transaction doesn’t have to be such an intimidating prospect though.

If you do your research into the legal aspects, plan properly, and work with the right expert, your experience can never be a stressful one.

Here we have summarized the main elements and things to consider in a business’s selling or buying transactions.

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Decide when to sell or buy a business

Timing is everything when it comes to selling or buying any business because a great opportunity will never remain for long on the market.

Seller and buyer both must consider the timing of their transactions, both financially and personally.

Things to consider as a seller

There can be any number of possibilities why you want to sell your business.

Regardless of why you want to sell a business, it’s important to recognize that some factors can affect the price you’ll get from selling a business.

One of the factors is the value you’ve built up in your business.

Ask yourself some questions like,

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  • Can your business function independently without you?
  • What is the strength of your contracts, revenue, and governance?
  • Do you have any strong, unique selling point (USP) or intellectual property (IP)?
  • What is the level of debt in your business?

After getting answers, if you see room for improvement, then now is not the time to sell your business.

Strength of the economy and prevailing tax regimes are also important as both can influence your business’s final selling price.

Things to consider as a buyer

It needs to be a good and right time for you if you’re thinking of buying a business.

Don’t rush into this decision if there’s anything likely to have a significant impact on your financial situation or your life.

When you buy a business, there is often a new business process to learn, staff to manage, and a business culture to adapt to, which always requires more work than you expect.

Before making any decisions, you should research the current macroeconomic climate, the broader economic landscape and your sector, alongside the microeconomic climate –regional or local economy.

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Also, you may need to research any changes in legislation that can impact your industry and the effects of those changes on your business.

The more information you have, the better decision you’re likely to take.

Get the help of a professional advisor

The whole procedure of selling or buying a business is complicated and time-consuming.

A professional can help you get a better price when you are either buying or selling your business.

Things to consider as a seller

Look for professional advisors with the contacts, experience, and skill-set to get you the best possible deal and price for your business and does the paperwork.

Apart from their experience in buying and selling a business, the benefit of using a professional advisor is that you can focus on your business. In contrast, they focus on getting the best deal for you.

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Without a professional onboard you are responsible for valuing, advertising and negotiating the sale of the business, which will be much work.

Things to consider as a buyer

If you are buying a business, you will probably negotiate with a broker of the seller.

You will still need to hire your accountant as you proceed with buying the business to assist you in carrying out diligence.

You may also need a financial advisor to help raise fund regarding the purchase.

Having professionals will increase the chance of the best deal.

Finding the right seller or buyer

Neither the seller nor the buyer can be sure how long this stage will take in case of selling or buying a business.

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This stage could take a year or just a few weeks – if you find the right seller or buyer.

Patience can be a valuable trait to have at this stage of the selling or buying process.

Things to consider as a seller

You’ll want to see your business sell for the price its worth.

Therefore you’ll have an idea of the kind of people you want to carry on its legacy.

You’ll need to consider how much and how long you’ll offer support to the buyer after the sale of your business.

Having an expert on board to provide practical and realistic advice regarding this and find a buyer will be beneficial.

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Things to consider as a buyer

Finding a business to buy can be simple if you narrow your choice by price range, location, profit, or turnover.

To get a sense of going rates in the market, you should take a look at plenty of businesses.

Due diligence and confidentiality

It is the practice for the two parties in the buying-selling process to enter a confidentiality agreement for due diligence.

It’s an agreement to keep something confidential for the purpose of due diligence.

During the due diligence process, the buyer will have the opportunity to conduct a thorough evaluation of their desired business’s assets and liabilities.

It is a common practice to seek the help of a professional to assist in this process.

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Things to consider as a seller

To maintain the level of trust with the buyer, be timely with your paperwork.

Delays can breakdown the relationship and make it seem as you have something to hide.

You should go through all the records and finances to make sure that there are not any flags that could be off-putting to a buyer.

Things to consider as a buyer

For a buyer, due diligence is an opportunity to see whether all the statements that the seller has made regarding the performance of the company and the assets are justified.

Leave no stone unturned in due diligence part of the process, guided by your advisor.

Don’t compromise thoroughness to speed up the buying process the business and check physical assets, including stock and buildings.

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Finance and deal structure

Whether you’re seller or buyer of a business; you have to compromise at one stage or another to complete the deal.

It’s better to have an ideal price in mind.

Beyond that, it’s beneficial to be as flexible as is reasonable to make the deal happen.

Things to consider as a seller

If things work your way and buyer has the means, they might offer you a lump sum for your business.

If you have reached a deadlock in negotiations, accepting that some of the considerations will be deferred and received in instalments, could be the solution.

In a few sectors, accepting a deferred consideration is the norm. On hitting certain milestones, future payments will be due.

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Even there may be a chance to work with the buyer as a consultant once the deal is finalized.

Things to consider as a buyer

Your professional advisor can advise you on a range of funding options depending on your financial resources.

If you lack experience in the sector of the business, it might be beneficial for asking the seller to stay as a consultant for a defined period after the sale.

Wrapping up

Whether you’re selling a business that you have worked hard at or embarking on a new journey of a business; you should make sure that you have thoroughly researched the industry.

It’s always valuable to have an expert on your side before setting out major steps in the buying or selling process of any business.

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