A Guide to Selling Your Own Business

Sample Chapter: Pages 13-15 from a Total of 30 Pages

What Exactly Are You Selling?

Assets

Detail exactly what is included in the sale. A listing of assets that you are putting up for sale will clarify in your mind exactly what you are about to sell. Equally important, the buyer will know exactly what is included in the sale. Time spent on clarifying an asset list will save many headaches later.

Make a list of each item of:

• Plant
• Equipment
• Fittings
• Fixtures
• Computer hardware
• Computer software

Then set a value for each item. You will need to talk to your accountant about setting prices for some or all of the items in your list as there will be GST and tax depreciation issues to consider.

You are required to warrant and undertake:

• that all assets in the sale are your unencumbered property (ie, free of all charges, hire purchase agreements etc)
• that all electrical and other installations are free of charges
• that the plant fittings and fixtures are in good operational order and condition.

Stock List

Do a stock take even though you will need to repeat the exercise with the purchaser at the time of possession/settlement.

During the sale negotiation process, you will need to give the buyer an idea of the value of the stock that he/she is going to purchase. After all, they may have to raise the capital to purchase it.

Also, when you sit down with your lawyer / solicitor to prepare the Sale Agreement, you will need to provide the value of your stock and have a Maximum Percentage Stock Value Adjustment figure ready. The problem is that you may have had to continue trading for some days before the business is handed over. Trading will decrease your stock. In some cases it may even increase if ordered items arrive.

If the value of stock at the time of the hand-over stock take is outside the boundaries set by the Maximum Percentage Stock Value, it will cost you money. It's to your advantage to have made a list of your stock and know how it changes with trading.

Goodwill is a debatable component of any business sale. Sellers want to add goodwill into the sale price and buyers are reluctant to purchase it. However, when goodwill comprises an asset that can be defined and properly valued it should be include in the sale price. Consider the following examples:

• Does your business a Domain Name(s) and Listing(s)? While the actual address and the cost of making the Listing have fixed values, a Web presence should have also increased customer awareness within New Zealand and overseas. If you can show how many customers come to you via the Internet and if you know how much they spend, you can put a value on handing the Listing on to the new owner and this value should be added to the sale price.
• Does your business own a Trade Name? Does your business operate from a unique location? Do you offer exclusive products? Do you control your own distribution network? Do you have a unique 0800 telephone number? Do you own a unique Web site address (Domain Name)?

All of these things are important to your business but you need to be able to prove their value if you are to add them to the business sale price.

The new owner will want to know from whom you purchase stock and supplies. While operating your business you will have compiled a range of suppliers and you may have developed special relationships with some of them. This information can be used to increase the value of your business (goodwill). Make a list that details:

• Supplier
• Existing contracts
• Contact person
• Phone, Fax, Email, Business card
• Any special deals, discounts, promotions, terms of payment that the supplier has offered in the past.

Consider how long it took to obtain these suppliers and put a value on your time.

Customers may or may not return to the business under new management. But if you have customer's names, addresses and contact details they will add value to your business (goodwill). Customer records can be as diverse as computer databases to lists of Christmas Club members.

The customer listing has a value if it can be used to generate sales by direct

mailing or by telemarketing. But if the list is out of date it has little, if any, value.

Make a summary of your recent marketing and advertising programme. Supply copies of:

• Advertisements
• Brochures
• Mailings
• Leaflets
• Radio advertisements
• Television advertisements

Identify which advertisements were successful and any that failed. Include any signage that you have had prepared that enhances customer perception of your business. All of this information is valuable to the new owner and will increase the value of your business (goodwill).

Think about how much effort you have put into marketing and advertising. If it will materially assist the new owner, put a value on the time you spent on developing your marketing mix and add the cost to the sale price.

Does your business require specialist or technical knowledge for its operation? If so, you will need to prepare appropriate operating manuals. Market this intellectual property as part of your goodwill package:

Other goodwill components include:

• Your mark-up and pricing strategies
• Your shop layout and merchandising tactics
• Your employment policy, staff training, and employment contracts
• Stock levels and seasonal influences on stock level and type
• Window displays and shop lighting
• Credit policy

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