FAQ

For Seller

There Are Many Reasons Why Selling Your Business Might Be Better Than Closing It

  • Build on Retirement Fund: Selling your business can provide a significant lump sum or ongoing income stream, which can be added to your retirement savings, offering financial security for the future.
  • Recoup Financial Investment: Selling the business allows you to recover some or all of the money you invested, whereas closing may mean walking away with little to no return.
  • Preserve Business Legacy: By selling, you can ensure that the business you built continues to operate and serve its customers, maintaining the legacy you created.
  • Benefit from Market Value: If your business is performing well or is in a growing industry, selling could enable you to capitalize on its market value, potentially earning more than just the liquidation value of assets.
  • Provide Continued Employment: Selling the business can help preserve jobs for employees, who might otherwise be displaced if the business is closed.
  • Leverage for Future Opportunities: The proceeds from a sale can be used to fund new ventures, investments, or personal goals, providing a stepping stone to the next chapter in your career or life.
  • Avoid Shutdown Costs: Closing a business often involves significant costs, such as severance pay, lease terminations, and liquidation expenses. 
  • Retain Customer and Supplier Relationships: A sale allows for a smoother transition for customers and suppliers, maintaining relationships that could be lost if the business shuts down.
  • Maximize Value of Intangible Assets: Selling allows you to monetize intangible assets like brand reputation, customer base, and intellectual property, which might otherwise be lost if the business closes.
  • Align with Personal Circumstances: If personal reasons, such as health issues or a desire for a lifestyle change, are prompting a decision to exit, selling provides a cleaner break with potential financial benefits compared to closing.
  • Lack of Successors: If there is no suitable family member or employee to take over the business, selling may be the best option.

There are several common methods for valuing a business, depending on the nature of your business and industry:

  • Asset-Based Valuation: Calculate the net asset value of the business by subtracting liabilities from the total value of all assets.
  • Earnings Multiple (EBITDA or EBIT): Multiply the business’s annual earnings before interest, taxes, depreciation, and amortization (EBITDA) by an industry-standard multiplier. This multiplier reflects the business’s growth potential, industry, and risk.
  • Earnings before interest and taxes (EBIT) can also be used in a similar manner.
  • Discounted Cash Flow (DCF): Project future cash flows and discount them back to their present value using a discount rate that reflects the risk of the investment. This method is more complex but provides a detailed picture of future potential earnings.
    Engage a Professional Valuator
    Business Appraiser: Hiring a certified business appraiser can provide a thorough, objective valuation based on established methodologies.
  • Accountants and Financial Advisors: They can provide insights into financial statements and help identify key value drivers.
  • Business Brokers: These professionals can offer insights based on market conditions and recent sales of similar businesses.

Yes, it’s common to exclude specific assets from the sale of a company.

Commonly excluded items include investment properties and bank account balances.

Bank account balances are often negotiated separately, with a portion retained by the seller, which may factor into the overall sale price of the company.

In an asset sale, each individual asset to be transferred is typically negotiated between the buyer and seller.

Yes, our system can generate the SPA. However, for partial sales, a Shareholders’ Agreement (SHA) is typically required as well.

The SHA covers important conditions such as:
Reserved matters needing 100% shareholder approval,

Compensation for working directors (e.g., salary, bonuses),

Financing commitments for the company’s operations.

While we can help with the Letter of Intent (LOI), we recommend involving a legal firm for the S&P SHA, and we can refer trusted lawyers we work with.

We kindly request proof of identity and authorization as part of our standard procedure to ensure the legitimacy of the transaction and prevent any potential fraud. Additionally, this information is essential for preparing the Non-Disclosure Agreement (NDA) and other legal documents needed for the sale.

Yes, we understand the importance of maintaining privacy, as premature announcements could impact your business. Therefore, we ensure that all information on our listings is censored and only shared with buyers who have paid a deposit and signed a Non-Disclosure Agreement (NDA).

If you have concerns about online listings, feel free to contact us directly to discuss the sale of your business.

For Buyer

The sale of a company and the sale of assets differ mainly in what is transferred and the implications for taxes and liabilities: 1. Sale of Company: – What is sold: Ownership of the entire company – Liabilities: The buyer takes on all company liabilities (debts, lawsuits, etc.). – Taxes: The seller is taxed on the sale of shares at capital gains rates. – Ownership transfer: The buyer gets full control of the company. 2. Sale of Assets: – What is sold: Specific assets (e.g., equipment, inventory, property) but not the company itself. – Liabilities: The seller keeps any liabilities unless otherwise agreed. – Taxes: The seller may face higher taxes as assets are sold individually. – Ownership transfer: The buyer only gets the assets, not the whole company.
Providing proof of identity is necessary to ensure the legitimacy of the transaction and to meet legal and regulatory requirements. This information helps us draft the Non-Disclosure Agreement (NDA) and other essential legal documents.
 

Engaging a professional valuator is not strictly required, but it is often highly recommended, especially in the context of selling a business or navigating a complex merger or acquisition. Here are some considerations to help you decide whether you should engage a valuator:

Reasons to Engage a Valuator

  1. Accurate Business Valuation: Professional valuators have the expertise to conduct a thorough analysis using established methodologies (such as discounted cash flow, comparable sales, or earnings multiples). This can provide a more accurate and credible estimate of your business’s value.

  2. Objectivity and Credibility: An independent valuation by a certified valuator adds credibility to the selling process. It provides an objective assessment, which can be particularly persuasive to potential buyers or investors, reducing the perception of bias that might come from a self-assessment.

  3. Complex Financials or Assets: If your business has complex financial structures, intangible assets, or significant intellectual property, a professional valuator can help ensure all these elements are properly accounted for in the valuation.

  4. Support in Negotiations: A well-documented valuation report can serve as a strong foundation for price discussions and negotiations. It helps justify the asking price and provides a solid base for defending your valuation in case of disputes.

  5. Preparation for Due Diligence: Having a professional valuation can help you anticipate and address questions or concerns from potential buyers during the due diligence process. It also demonstrates that you have taken steps to ensure the business is fairly valued.

  6. Regulatory or Legal Requirements: In some cases, regulatory bodies or legal agreements may require an independent valuation, particularly if there are minority shareholders, tax considerations, or other legal obligations involved.

  7. Peace of Mind: Knowing that a professional has carefully evaluated your business can provide peace of mind, especially if you are not familiar with valuation methods or market conditions.

Situations Where You Might Not Need a Valuator

  1. Small or Simple Businesses: If your business is relatively small, straightforward, and uncomplicated, you might be able to estimate its value on your own using simple valuation methods or by consulting with a financial advisor.

  2. Familiarity with Valuation Methods: If you have experience with financial analysis and are comfortable using various valuation techniques, you might be able to conduct the valuation yourself or with the help of a basic financial advisor.

  3. Early Stage in the Process: At the very early stages of considering a sale, you may not need a full valuation report. An initial estimate based on a simple multiple of earnings or a market comparison might suffice for preliminary discussions.

  4. Low Cost of Valuation Relative to Business Size: If the cost of hiring a professional valuator is prohibitively high relative to the size or expected value of your business, you might choose to rely on a simpler, less formal approach.

  5. Trusted Advisor: If you have a trusted accountant or financial advisor who understands your business and industry, you might prefer to rely on their expertise for an initial valuation rather than hiring a separate valuator.

Conclusion

While it’s not mandatory to engage a professional valuator, doing so can significantly enhance the accuracy, objectivity, and credibility of your business valuation, especially in complex or high-value transactions. It’s generally advisable to consult with a valuator or financial advisor, particularly if you are unsure about the value of your business or if the stakes are high. The decision ultimately depends on your specific situation, comfort level with financial analysis, and the complexity of your business.

No, we don’t provide valuation services as it will be a conflict of interest. However we do work closely with a few  Chartered Valuer and Appraiser (CVA) and will be glad to refer them to you.
Yes, we can refer you to the trusted firms we work with that provide company incorporation services in Singapore.

The responsibility for conducting financial due diligence typically rests with the buyer. However, we can refer you to audit firms we work with who can assist with this process.

Seller Discretionary Earnings (SDE) normalizes a business’s earnings by adding back discretionary and non-recurring expenses, such as the owner’s salary and personal benefits, one-time costs, and non-cash expenses like depreciation. This adjustment provides a clearer picture of the business’s profitability.

The deposits are non-refundable but will be applied towards the final purchase price. They are collected to ensure that all offers are genuine. Buyers can make general inquiries with the seller before signing the NDA.

Yes, buyers may incur several fees, including:

  • Deposit: Required upon signing the NDA.
  • Stamp Duty: If purchasing the business as a company, stamp duty for the shares will apply. The company’s corporate secretary can assist with this.
  • Legal Fees: If the buyer chooses to engage a lawyer to draft the Sales and Purchase Agreement (SPA) or Shareholders’ Agreement (SHA) for a partial sale.
  • Financial Due Diligence: Costs associated with conducting financial due diligence.
  • Valuation Fees: For professional valuation services of the business.
  • Regulatory Fees: Such as those for the novation of agreements in a sale of assets.

These fees are part of the overall cost of acquiring a business and should be factored into the purchase planning.

Legal mambo jumbo

We work with a few law firms and will be glad to refer them to you.

A non-competition clause, also known as a non-compete agreement, is a provision in a sale agreement that prevents the seller from starting or joining a competing business within a specified geographic area and time frame after the sale of the business. The purpose of this clause is to protect the buyer from direct competition by the seller, who may have insider knowledge, customer relationships, and strategic insights that could unfairly advantage a competing venture.

Key Aspects:

  • Duration: Specifies how long the non-compete will last, typically ranging from 1 to 5 years.
  • Geographic Scope: Defines the geographic area where the seller is restricted from competing.
  • Scope of Activities: Describes the types of businesses or activities that are restricted under the clause.

An information memorandum, often referred to as a Confidential Information Memorandum (CIM) or an Offering Memorandum (OM), is a document prepared by the seller or their advisors that provides a detailed overview of the business being sold. It is used to inform and attract potential buyers, giving them the necessary information to evaluate the investment opportunity.

Key Components:

  • Executive Summary: An overview of the business, including its history, ownership, and key financial data.
  • Business Description: Detailed information about the company’s operations, products or services, target markets, and competitive advantages.
  • Financial Information: Historical financial statements, projections, and key financial metrics to demonstrate the business’s profitability and growth potential.
  • Market Analysis: An analysis of the industry, market trends, and competitive landscape.
  • Management and Organization: Information about the management team, organizational structure, and employee base.
  • Investment Highlights: Key reasons why the business is an attractive acquisition target.

A Letter of Intent is a preliminary, non-binding agreement outlining the main terms and conditions under which a buyer proposes to purchase a business. It serves as a framework for further negotiations and due diligence.

Key Elements:

  • Price and Structure: The proposed purchase price and the structure of the deal (e.g., asset purchase or stock purchase).
  • Exclusivity Period: A period during which the seller agrees not to negotiate with other potential buyers.
  • Confidentiality: Agreements to keep negotiations and shared information confidential.
  • Conditions to Close: Key conditions that must be met for the deal to proceed, such as satisfactory due diligence or regulatory approvals.

An earn-out is a provision in a purchase agreement where part of the purchase price is contingent on the business achieving certain financial performance targets after the sale. It aligns the interests of the seller and the buyer by tying part of the compensation to the business’s future success.

Key Considerations:

  • Performance Metrics: The specific financial or operational targets that must be met (e.g., revenue, profit, or EBITDA).
  • Measurement Period: The time frame over which performance is measured, usually 1 to 3 years post-sale.
  • Payment Structure: Details on how and when the earn-out payments will be made if targets are achieved.