FAQs

1. Why should I sell my business? 

Because it’s worth a lot of money. More than you probably think. Selling your business will free up your time to make lifestyle changes, pursue new challenges and money making opportunities, or spend time with your family and friends.

Selling enables you to retire and get out of the rat race altogether, or (if you still want to have a say in your business) you may be able to stay on as a consultant, monitoring the business without the stress of your current position as owner.

2.  When’s the best time to sell?

The best time to sell is when your business still has potential and is performing well.

However, a bad year should not stop you from selling, as often this is recognized as a oneoff result and will not necessarily affect the value of your business as much as you think.

More likely, the best time to sell is when you’re ready, not when you are forced. That means planning ahead, something which CSA can certainly help you with.

3.  Who is the best person to sell it?

The one most qualified.
Some business owners think that because they know so much about their own business, they’re the best person to try to sell it. But selling a business is a unique challenge which requires an enormous amount of time, resources and know-how, something which business owners don’t usually have.

It is far more reassuring to have CSA making the most of the opportunity for you. CSA has been successfully selling businesses since 1989. There would be few more qualified.

4.  Who should I tell?

As few people as possible, but you should be aware of your legal obligations. Selling your business can be very unsettling for your customers, staff and suppliers. In the initial stages you don’t want to let anyone know of your intentions as the news could affect your business operations and ultimately, its value.

5.  How does CSA keep it confidential?

In the initial stages of marketing, the identity of the business is kept anonymous. Only after screening prospective buyers and narrowing down the “hot-list” would we then disclose the identity of the business for sale. Before doing so, however, the buyers would sign a confidentiality agreement, further ensuring their discretion.

6.  Who else is involved in the sale?

Selling your business is a team effort, led by yourself and your CSA team. Other important members include your Solicitor and Accountant, both of whom could make or break any deal depending on their actions.

Your Solicitor’s role is to record in correct legal terms the agreement that has already been negotiated between the parties, whilst ensuring they preserve the integrity and spirit of the original agreement.

This will include:

• Approving the final wording of the special conditions drafted by CSA that have been agreed in principle by the business owner and purchaser.
• Obtaining the landlord’s consent for assignment of the lease.
• Compiling any restraints of trade.
• Holding the original Sale and Purchase agreement and ensure compliance dates are met so that the agreement is completed.
• Transacting final settlement funds.
• Registering the transfer of trademarks, copyright, and trade names etc.

Your Accountant’s role normally is to:

• Provide copies of historical financial statements going back at least three years.
• Prepare interim financial statements should they be required to obtain an offer.
• Provide information during Due Diligence.
• Advise on the tax implications of offers presented.

7.  What role does my CSA Broker play?

The primary role of your broker is to sell your business within the range of terms agreed. This is done by finding a buyer who is able to operate the business and most importantly has the capacity to give you the best price and terms.

Along the way the broker will help you analyse and evaluate a range of buyer offers and their associated special conditions of sale.

Company Sales focus will be to:

• Optimise the relationship between price and terms.
• Meet the Vendor’s time frame.
• Protect the Vendor’s confidentiality instructions.
• Operate within the REINZ Code of Ethics and Rules of Conduct.
• Act with professionalism and in the best interests of the vendor.

8.  How does the CSA Broker achieve this?

A successful sale is a team effort, with both the Vendor and Broker working together with the Vendor’s professional advisors to achieve the best result. This pooling of resources is essential for an optimum result, as each party can contribute their own unique knowledge and experience to the selling equation.

Your CSA Broker will also ensure a successful outcome by:

• Investigating and understanding the business sufficiently before attempting to appraise its value.
• Preparing a professional Information Memorandum that both invites the reader to take the next step and accurately reflects the business in its essence, thereby avoiding misunderstandings.
• Planning and executing an effective marketing strategy.
• Reconstructing your financial accounts if necessary to truly reflect the performance of your business. For example eliminating or highlighting non-recurring costs.
• Being competent to value the business, possessing relevant market information and having the necessary experience.
• Helping both the Vendor and Purchaser understand the selling process as prescribed by legislation, including the structuring of offers.
• Negotiating persuasively to achieve a ‘win win’ result. The new purchaser must be appropriate for the business and buy the business on terms and conditions that meet the Vendor’s objectives.
• At all times communicating, persevering and coping with the ever changing business and its environment.

9.  What do I need to do before I sell?

The first thing to do is make sure that you really do want to sell. Changing your mind half way through the process can adversely affect your reputation (not to mention ours!) as well as any future sale.

You will then need to complete financial statements for at least the last three years as well as any other documentation needed to complete an Information Memorandum (IM).

Make sure your CSA advisor is properly briefed and understands your key business drivers and reach agreement with him on the best way to market your business for sale.

10. What are the steps involved in the sale?

There are a lot of steps involved in selling your business which is why it’s important to have someone alongside you who has experience in the sales process.

Step 1. After the initial marketing of your business, CSA will present the IM to qualified purchasers who have signed the confidentiality agreement.
Step 2. We will then discuss and resolve any issues a likely buyer may have.
Step 3. Introductory meetings with interested purchasers, will normally be followed by a visit to the premises.
Step 4. We will then focus on working with the most promising investors to generate an offer.
Step 5. This will lead to the preparation of the first draft of the ‘Agreement for Sale and Purchase of a Business’ with the most appropriate party.
Step 6. We will then help you negotiate and finalise the ‘Agreement for Sale and Purchase of a Business’.
Step 7. Satisfactory due diligence inspection will then be completed.
Step 8. Conditions of Sale such as finance and Landlords’ consent will be satisfied.
Step 9. The Agreement is formally confirmed as unconditional.
Step 10. Settlement is completed on possession date.
Step 11. Enjoy the rest of your life!

11. How can I be sure of getting top dollar?

To get the maximum from the sale of your business you must optimise profits leading up to the period of sale even if it’s at the expense of higher taxes.

An investor looking at your business will be most interested in the profit, and whether it can be maintained. For this reason, you should focus on increasing sales, reducing expenses and seeking ways to improve operations, which lead to reduced costs.

Operating profits must be ‘normalised’ by adjusting for items such as interest costs, shareholders’ salaries and discretionary expenses not directly related to your business, and any one-off ‘abnormal’ costs. This task may be carried out by your accountant or the CSA team.

Remember every dollar you add to your bottom line net profit could add around three or more times that figure to your business’ sale value!
Buyers generally require the previous three full years of business financial results (if applicable). If possible your accountant should also prepare an interim financial statement for current financial year to date.

Your staff should be motivated and performing well and it is imperative that you have up to-date employment contracts in place.

Good documentation and effective systems are always attractive to a purchaser. This may include supplier agreements, contracts with customers and any other legal, procedural, or business related items. You only have one shot at a good first impression – therefore make sure the physical aspects of the company are presented as you would if you were selling your own house.

When selling there are often tax implications relating to the depreciation of your plant and equipment. We strongly recommend tax advice is sought during this process. Should the plant and equipment be sold at a value between the depreciated value and the original cost, you will have a tax liability known as ‘depreciation recovered’. On the other hand, if the plant and equipment is sold at a fair market value below the depreciated value, there will be a tax deduction. If you sell plant and equipment at any value above the original cost then, under current legislation, generally this gain between selling price and original cost is tax free.

Tax issues may also arise if a profit is realised on sales of land and buildings, or the stock.

There is currently no capital gains tax in New Zealand. You should not be taxed on the proceeds of the sale of your business unless you buy and sell businesses for a living.

12. Why should I sell through one brokerage?

Selling a business is not like selling a house. The process requires the commitment of all parties to achieve an optimal result. Unlike a house, a business is dynamic and in a constantly changing environment. For this reason, a business sales specialist needs to create a level of empathy and trust with both the owner and the purchaser sufficient to take them past the potential ‘deal breakers’ that arise during the process.

By giving a general listing, the business owner is encouraging all the brokers involved to:

• Rush the preparation and possibly risk future litigation;
• Put the business in front of as many potential buyers as possible, as quickly as possible, thereby compromising confidentiality;
• Reject any purchaser who cannot act immediately;
• Present and encourage the acceptance of the first offer before anyone else
• Encourage a discounted price allowing for uncertainties that cannot be determined due to time pressure.

This process can become a race to produce a buyer at the minimum price acceptable to the business owner.

In contrast, the sole agency (correctly orchestrated) will allow ‘feedback loops’ to operate, dealing with the objections and questions that will inevitably arise. Uncertainties will be removed.

The process will also:

• Enable purchasers to be targeted in order of their suitability;
• Allow enough time to evaluate the business correctly at each stage;
• Protect confidentiality;
• Encourage us to commit substantially more time to the project, confident that the process can be appropriately managed.

We believe the sole agency process will provide the best result for the vendor, which is why we at CSA will only work on a sole agency basis.

13. How will you market my business?

CSA has an extensive client base of qualified buyers. Many of our sales are matched to these buyers without public advertising. The buyers on our client base normally have a few weeks to explore a new business (if it potentially meets their requirements) before the business is promoted to the rest of the market. This greatly increases the confidentiality aspect of marketing your business.

The marketing plan will be the most effective way of reaching your target market. You have the final say on the marketing campaign and the level of confidentiality required, including whether to disclose your business name and the general wording of the advertising.
For the sale of a small to medium sized business:

Stage One –Preparation

• Execute our Sole Agency Appointment Contract. Our 7.5% sliding scale fee structure recognises two essential agreements vital to the successful outcome for all concerned. Firstly a small upfront fee that demonstrates to us that you have the necessary commitment to sell, and secondly a success fee payable only after your solicitor has declared the agreement unconditional. The upfront fee is deducted from the success fee on completion of a sale.
• Prepare a detailed Information Memorandum. We have a reputation among Auckland’s Accountants, Lawyers and Bankers for producing highly professional documentation and for selling quality businesses since 1989. We have an internal peer review process to ensure that the very best result is achieved.
• Prepare a one page ‘teaser’ advertisement.
• Prepare a confidential internet version of the ‘teaser’.
• Meet with the Vendor to approve the content of the above documentation and to agree on the listing price and other terms.

Stage Two – Going to Market

• Meet internally with all CSA’s brokers individually to review and select the most appropriate purchaser prospects from everyone’s personal lists to be contacted directly. At CSA all potential buyers are shared amongst the team.
• Submit the confidential version of the ‘teaser’ to selected websites at no cost to the Vendor. This internet advertisement will remain live until a sale becomes unconditional.
• Email the ‘teaser’ to our network of Chartered Accountants and professional advisors.
• Make copies of the Information Memorandum and obtain Confidentiality Agreements from each interested party.
• Meet personally and qualify prospects.
• Accompany to the Vendors premises as prearranged with the Vendor, only those prospects that have been highly ‘qualified’ by us.
• Negotiate the sale.

Stage three-if required

• Normally we achieve a sale at Stage Two. However there are occasions when this is not possible and we are forced to go to the wider market. The most effective method for this is display advertisements in daily newspapers, financial magazines and in some cases trade publications. Typically a series of placements costing up to $1000 + GST will produce enough interested parties. These costs are payable by the Vendor and are agreed to in advance.

Stage Four

• In the event that we still do not have a sale, it is likely that our six months Sole Agency will have expired or be near to expiry. This is the time for a serious review of the sale proposition
• We would conduct a complete review of the results and circumstance and agree with the Vendor on how to proceed.

14. What do I need to do to prepare my business for sale?

• Understand the complete process involved
• Be committed to the sale
• Know the proportion of equity you want to sell (usually we strongly recommend 100%)
• Be prepared for the required level of hand over assistance
• Consider the availability of vendor finance

Ideally, you shouldn’t wait until the business has exhausted every opportunity. Too often, vendors leave the sale until too late. The best prices are obtained when the business can still offer upside potential. If your business is seasonal it will sell quicker at the beginning of the season, with a higher (tax free) price.

Prepare an exit plan. While it isn’t always possible, the best time to plan for the sale of your business is two years ahead of the time you wish to exit. Always have a business plan that covers what you are doing this year and where you want the business to be in 2 years time.

• Be able to identify increases in staff and other costs with improvements in sales. An owner should optimise profits during the time available prior to the sale as current profitability is still one of the most important determinants of price. It is also important to highlight and adjust for any investment that you have made in the businesses that will bear fruit in the future. Otherwise you will be diminishing the realisable value of your business in favour of having a ‘good story to sell’.
• Minimise reliance on the owner/operator by implementing effective quality and management systems, as well as employing reliable staff. Change your sales literature to focusing on the business rather than the owner. Businesses that are demonstrably managed for the owner are more attractive.
• Bring in realistic stock and WIP valuations, & eliminate obsolete or slow-moving stock.
• Tidy up the P&L (eliminate all private expenditure).
• Clean up the premises and the plant. Remember, first impressions are lasting ones.
• Tidy up employment contracts, supply agreements and the property lease.
• Prepare a risk analysis of ‘controllable unusual events’ that could sabotage your profits.
• Provide the opportunity to extend the lease.
• Use a professionally prepared Information Memorandum.
• Use an experienced professional to prepare presentation material, maximise exposure to qualified investors and negotiate price with the knowledge of the business sales market. Credibility in the presentation and negotiation process is vital.
  
• Remember, your CSA advisor will be there to assist you in all these areas and take away the ‘hassle’.

15. What does an Information Memorandum look like?

A professionally prepared Information Memorandum is an essential part of the sale process.

• It is a key marketing tool.
• It minimises the risk of litigation (by making it clear exactly what has been sold).
• It enables the broker to control the sale process leaving you free to continue to run your business.
• It discloses all material attributes both positive and negative to avoid subsequent loss of credibility or collapse of negotiations.

A typical IM will usually include most of the following:

16. How will the negotiations be handled?

Selling a business is nothing like selling a house, where price is the only significant variable. Price is only one of the significant and negotiable factors in the purchase of a business. Even the components of price are themselves negotiable and trade-off s can be made on values for:

Goodwill - Plant and Equipment - Stock - Furniture and Fittings - Debtors

Other negotiable terms may include:

• The lease of premises
• The percentage of equity to be purchased
• Period of vendor hand over assistance
• Vendor finance
• Earn-outs, where the goodwill may be payable on the achievement of future profit levels

Put yourself in a purchaser’s shoes to anticipate, eliminate or neutralise any concerns that they may have about your business.

CSA and the business owner must work together to address any crucial or negative issues relating to your business. It is likely that any concerns you have about your business will also be a concern to a prospective buyer. 

There are choices for action:

• Identify potential areas of concern and change or eliminate them pre-marketing
• Develop an explanation about the concern and its significance
• Address the issue head on to diff use it and prevent it becoming a major concern later in the sales process.

Serious problems discovered by potential buyers during their due diligence period are generally deal killers.

Qualified buyers are usually competent business people and will be thorough and careful in their appraisal of your business. It is usually better to confront any issues directly with a serious buyer. You are the best judge of what a potential problem may be. Ideally you should have the confidence in your broker and/or your advisors to discuss any issue and together develop a course of action. Your business details and information will be provided to a qualified buyer during meetings and via the information memorandum.

Purchasing a business is unlike the purchase of most other assets where the objective of the buyer’s negotiation is to drive price down as low as they can. This will not pay off in business acquisitions. Most vendors have an emotional tie to the business they have created, and a genuine desire to see it grow.

Price is only one factor in the sale, and an increased price from the buyer may be obtained by providing more favourable terms on items such as:

• Vendor finance
• Period of assistance and an attitude of co-operation by the vendor
• Outgoing management contract
• Earn-outs to support goodwill

There are so many factors considered when attempting to place a finite value on a business that it is never possible to say that a business is worth $X.

17. Will I need to provide Vendor Finance?

In many cases, it is difficult for a buyer to use the business’s plant and equipment and stock to finance a business purchase. Lending institutions do not generally consider goodwill as collateral even though goodwill is usually a considerable percentage of the sale price of a good and profitable business.

Buyers may therefore need a significant cash input, property or other assets that can be used as collateral for lending purposes. However on some occasions collateral can fall short of that required to finance a business sale. In other cases, the buyer’s equity in the business may be quite satisfactory but the ability of the business to service debt may not be adequate.

In these cases Vendor finance may be the only way the transaction can proceed. This is normally not the first option of a business seller, but sometimes this compromise is required in order to sell your business for the ‘maximum value’. For some business sellers this short term home for some of the proceeds of the business sale, earning them commercial rates of interest may be attractive.

18. What is Due Diligence?

Due Diligence is a process where the buyer investigates and confirms the financial/operational performance.

The buyer and their advisors verify as correct the information that has been received during the sale process and complete a thorough investigation of the business. Depending on the particular wording of the clause, if the information is not able to be verified or a material matter has not been disclosed, then the buyer can terminate the contract. This will rarely happen if the information memorandum is complete and accurate.

The process begins after offer and acceptance and takes around ten working days. Issues may arise that require further clarification and possibly a re-negotiation of the contract.

The buyer and seller and their respective teams of advisors need to work together to solve the various issues arising. Once all the conditions contained within the Sale & Purchase Agreement have been satisfied the buyer’s solicitor will confirm the agreement is unconditional.

From the unconditional date to the possession date both parties and their respective Solicitors and Accountants attend to the final details and documentation relating to the sale. At settlement both parties will cooperate on:

Stock take
This is normally performed by both the buyer and seller together. The stock level is costed and the final value must fit within the stock variance allowance shown in the Sale and Purchase Agreement. The settlement amount will be adjusted depending on the value of stock determined by the stock take.

Plant and Equipment
The Plant & Equipment will be checked off the schedule and inspected to ensure it is in good operational order. Any variances from the agreement such as destroyed or lost plant could be adjusted for in the settlement figure.

Sellers Assistance
Assistance in the period immediately after possession date varies depending upon the complexity of the business, but is usually about four weeks. In many cases the seller consults for a fee after the period of assistance.
The solicitors for both parties now attend to the required legal paperwork and consent to allow the transaction to be completed and settled as per the Sale and Purchase Agreement.