There are a number of items which you need to prepare after you have listed your business or franchise for sale. These may include the following:
1. Confidentiality Agreement –
To make sure that the people looking at your business keep the information confidential and don’t tell your staff.
2. Information Memorandum –
Overview of your business includes a number of points including information about your business, clients, how it operates, etc….
3. Financials for your Business –
These are normally prepared by your accountant and can be included in the Information Memorandum.
4. Contract of Sale –
Contract to transfer the ownership of your business to a new owner.
5. Exit Strategy –
Plan for you to transfer the business over to the new owner with the least amount of disruption to clients, staffing, etc…
These are only a few items which need to be prepared before you sell your business or franchise and some of these items can be prepared by Business Brokers, Business Valuations, Accountants and Solicitors in the sales process. For a good overview of some of the services offered and what you need to know, read the following article http://www.bizfilings.com/toolkit/sbg/run-a-business/exiting/selling-business-requires-expert-team.aspx.
The Exit Strategy can be very detailed or a simple overview of what you want to do, and is best started before you look at selling your business, but this is very important to have something ready before transferring your business over to the new owner and may be fine-tuned with the new owner to make sure that they are happy with the processes.
1. What is a Confidentiality Agreement and why do I need one to sell my business or franchise?
A Confidentiality Agreement is a basic contract between the owner of the business and a prospective buyer. This contract states that the prospective buyer will not disclose any information which has been given or talked about in meetings in relation to the business which they are looking at buying and they will keep everything confidential about this business and the operations, staffing, financials, etc…
A Confidentiality Agreement is important for the following reasons:
- The information required helps to determine that you aren’t giving information to your competitors.
- The agreement states that the prospective buyer is not to pass this information onto anyone else (except the required information to their accountant and solicitor for advice on purchasing the business).
- The prospective buyer shouldn’t be allowed to talk to staff about the purchase as this could cause concern and disruption to the business. In the worst case scenario, this could cause important staff to resign.
- The prospective buyer shouldn’t be allowed to talk to your clients as this can cause a loss in clientele.
- The prospective buyer shouldn’t be allowed to not start up a business which is similar to the one which they are looking at, so that they don’t work in competition to the owner of the business. This is the last thing that you want to have happen after telling them how your business works.
This document is important because it contains the full details of the prospective buyer to all of you to research and make sure that they aren’t your competitor and it also works to stop the prospective owner from telling others about the sale of the business.
Because confidential information is given to the prospective buyer during the sales process, information like the operation of the business, clients, competition, marketing and sales methods, this information may be used to start up a competing business or may be passed on to one of your competitors which could be disastrous for the business.
2. Why do you need an Information Memorandum and what is an Information Memorandum?
Whether you are looking to sell your business, a franchise or you are looking for investors in your business, an Information Memorandum (IM) will not only help you sell your business/franchise to buyers and investors, but a good IM will help you stand out amount other similar opportunities and offer value to the business by showing a professional display of your business.
An IM is a document or a set of documents which are provided to prospective buyers and/or investors as a brief investment or purchasing summary of the business/franchise. The IM allows the owners to present a comprehensive, accurate and attractive picture of the business/franchise which they are looking to sell to investors, buyers or prospective franchisees.
The IM contains key information from sales and marketing, legal and finance departments and must contain a full, true and complete disclosure of all information about the company which may affect the value of the business/franchise.
What should you include in your Information Memorandum?
Your Vision Statement – A short statement about where you see the company heading, which details about the values of the business/franchise.
…. Is planning on becoming a world leading business in the …. Sector
Your Mission Statement – A couple of paragraphs on how you are planning to achieve you vision by defining the purpose and primary objectives of the business. How you plan to achieve your vision and goals?
…. is planning on becoming a world leading business in the …. sector by providing one of the best standards of customer service and by offering the top quality of service and products to all of our customers.
What you should include:
1. Company history – When the business/franchise by whom and key achievements and awards up to the current date.
2. Products and services – A list of the current products and services which you offer.
3. Types of clients - A list of different market sectors for each client, i.e. manufacturing, government, retail, etc…
4. Sales and marketing - A brief overview of current sales and marketing strategies and campaigns (i.e. direct marketing, on-line, print media, social media, etc…).
5. Sales figures by product/service– Sales for each product/service and what it is worth as a percentage of sales to the company.
6. Key individuals – A list of keep employees, what they currently do and their positions.
7. Staff members – the total number of employees in the company and their positions and tasks.
8. Three years’ past accounts Staff members – Balance sheet or profit and loss of business according to the account department
9. Reasons for the sale or for seeking investment – retiring, expansion, franchising, etc…
10. Adjusted Net Profit – for a franchise or resale able business opportunity, this should be the potential profit based on past figures of previous and current owners of franchisee/ business opportunities.
3. Financials for your Business
The financial information which you should have ready for any prospective Buyers includes the last 3 years of the following:
a) Cash Flow Statement
b) Profit and Loss Statement
c) Balance Sheet
a) Cash Flow Statement
A Cash Flow statement is a summary of money coming into the business verse money going out over a period of time. This can be summarised in relation to Operational Activities, Investment Activities and Financial Activities.
- Operational Activities - Day to day transactions including income from sales and expenses from purchases, pay slips, etc…
- Investment Activities - purchases and sales from assets and investing in new opportunities, shares, etc…
- Financial Activities - Loans to or from the business from the owners/directors
b) Profit and Loss Statement
The Profit and Loss statement contains a summary of the businesses income and expenses over a stated period of time, i.e. over a financial year from 1st July one year until the 30th June the next year.
This the final profit or loss figure is achieved by taking the expenses away from the income to determine whether the business had a profit over the period or a loss over the period.
For Example –
A business with an income of $125,000 - expenses of $50,000 = Profit of $75,000,
A business with an income of $50,000 - expenses of $100,000 = Loss of $50,000
c) Balance Sheet
The Balance Sheet not only includes the Profit and Loss Statement, but this also includes a summary of your Assets and Liabilities.
For Example –
A business with Assets of $125,000 - Liabilities of $50,000 = Equity of $75,000
Assets - Property owned by the business like equipment, Land, etc… and money owning to the business, i.e. loans to others, outstanding invoices, etc…
Liabilities - Outstanding money owed to businesses or people outside of the company like loans, Invoices, etc…
For more information about these statements, please refer to the following website http://www.business.vic.gov.au/operating-a-business/managing-finances-and-tax/finance-basics/financial-statements
4. Contract of Sale
A contract of sale is normally prepared by a solicitor to transfer the business, its assets, name, etc… from 1 owner to the purchaser.
5. Exit Strategy
An Exit Strategy is a plan to transfer the business over to the new owner with the least amount of disruption to clients, staffing, etc… Sometimes this may incorporate a transition period where the current owner performs a full hand over to the new owner to help them settle into the business, be introduced to the staff and clients (if required) and make the transition as smooth and stress free as possible to all parties involved.
The best scenario is to get the business to the point where the current owner is working on the business and not in the business, so that the current owner has the least amount of direct involvement as possible. This way the business can be sold as a 100% managed investment or a business where the owner has the choice of reducing staffing expenses through more involvement of the managerial processes. This also adds more value to the business.
For more information about an Exit Strategy please go to the following link /blogs/strategy/plan-your-exit-strategy-before-you-start-your-business--why