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KEY THINGS TO TAKE INTO CONSIDERATION WHEN SELLING A BUSINESS

Entering the journey of selling a business demands strategic planning and thorough consideration. Whether you are an experienced entrepreneur or a first-time seller, navigating this process requires a comprehensive approach. In this exploration of the essential aspects of business divestiture, we delve into ten crucial considerations to guide you through this intricate process.

 

Determine Sale Inclusions:

Deciding what is included in the sale is an important discussion to have with potential buyers. This aspect often becomes a focal point of legal disputes, so it is essential to meticulously list all components in the sale agreement to prevent misunderstandings.

This includes:

  • Name of the business.
  • Movable and immovable property.
  • Agreements the business is party to.

 

Establish Fair Market Value:

Securing an accurate fair market value for your business is crucial to prevent undervaluation or overpricing. This process involves a comprehensive examination of your business, including profits, losses, and key customer lists. Financial advisors play a vital role in ensuring a thorough and formal valuation.

 

Assemble Your Team:

As previously stated, your financial advisor plays a crucial role in the sale of your business, however, there are several other experts that need to be included in your panel. Including a commercial attorney, an accountant, and potentially any expert relevant to your specific industry.

 

Choose the Right Deal Structure:

Beyond determining the business valuation range, it’s essential to structure the deal appropriately. Your advisors play an important role in this phase and will ensure that protective documents are drafted to ensure a smooth transaction.

 

Organising Finances:

It is important to have all your financial records in order before selling your business. You need to ensure that you include a comprehensive financial record detailing revenue, costs, payroll, and operating expenses. Ideally, your business needs to have maintained a consistent net profit for 3-5 years for an optimal valuation, as a solid valuation generally relies on consistent net profit and cash flow.

 

Enhance Corporate Governance:

Buyers often seek businesses with sound corporate governance to mitigate future risks. Engage a qualified advisor to assess and refine systems and processes, aligning with stakeholders’ and investors’ interests.

 

Conduct Due Diligence:

Once an offer has been accepted, the next step is “due diligence. This crucial process involves furnishing the prospective buyer with pertinent business documents to substantiate the proposed valuation. Include key contracts, license agreements, annual accounts, financial projects, and internal policies. Streamline the process by organising all documents and having legal advisors review them beforehand to prevent delays and pitfalls during the transaction.

 

Protective Documentation:

An attorney plays a crucial role in ensuring commercial protection by navigating complex transactions, ensuring regulatory compliance, and drafting essential documents. Their involvement safeguards your interests, fostering a smoother negotiation and closing process.

 

Address Employee Transition:

Clearly outline employee transfer terms in the Sale Agreement . In most cases, the employees will continue their employment under the new business owner. If employees are being retained, the new owner must adhere to the Labour Relations Act as well as the Basic Conditions of Employment and uphold employee entitlement, such as sick leave, annual leave, and other working arrangements. If employees are not retained, follow proper termination procedures, and settle all outstanding entitlements before completing the sale.

 

In conclusion, selling your business requires meticulous planning and adherence to these key considerations. Seeking professional assistance significantly contributes to a successful sale. With careful planning and expert guidance, you can navigate the process with confidence and achieve optimal outcomes.

 

For more information, please feel free to contact us admin@brookes.co.za | 031 035 1055

Labour Relations Act 66 of 1995: https://www.gov.za/documents/labour-relations-act

Basic Conditions of Employment Act 75 of 1997: https://www.gov.za/documents/basic-conditions-employment-act#:~:text=The%20Basic%20Conditions%20of%20Employment,basic%20conditions%20of%20employment%3B%20and

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