Business mentor: The how-to business for getting out of a business

Q. My business isn't working. How do I get out of it?

A. David Caselli, director of I Grow New Zealand Limited replies:

Staying in a business that isn't working can be one of the most soul-destroying and reputation risky activities a business owner can face. Certainly the key is to make quick decisions and engage in a course of action to leave or close the business as quickly as possible.

Sell or Liquidate?

With this in mind, the first challenge is to examine the root cause of why the business isn't working.

Is it because it is strategically challenged and doomed to failure? Or is there some potential that another owner could make successful?

Where failure is inevitable, you should endeavour to understand the reasons and see if any assets are saleable.

The Saleable Business:

Where you think another investor or owner could extract value from your business, several options exist for selling it. These vary according to the scale of the underlying business, the sector you operate in, and your location.

The core information requirements for a sale process are the same no matter what business you are in - you need an Information Memorandum.

This document should set out core information on the company, its products and services, assets, location, staffing and financial information.

Ideally this document should also outline the industry and market opportunities that may be available.

Although you can prepare an Information Memorandum yourself, it will often pay to get an accountant, corporate finance specialist or business broker to help you put this document together.

How to Get a Buyer:

Once you have this core information together you are in a position to find a buyer.

Though you could do this, it may be appropriate to engage a merchant bank, corporate finance adviser or business broker to act for you at this stage. Each is better suited to different sizes and scale of business.

The merchant banker and corporate finance adviser are best able to deal with substantial businesses (eg, the recent sale of Hurricane Wire).

Business brokers appear to operate most successfully with businesses worth less than $2 million. Many local real estate companies have teams that specialise in business broking.

The newspaper is a great place to sell things, but selling a business is complex and you need to consider whether the Securities Act is relevant to your sale.

If you are just selling property and assets, then you can freely advise your business assets for sale.

However, if you want to sell a shareholding in a company, you need to take legal advice on what you can and cannot advertise.

Getting this wrong can be costly. So, if in doubt, get some legal advice.

Brokers and advisers make a living out of understanding where to find buyers and investors.

They understand how individual investors, corporate venturers, other industry companies and individual investors think and can probably target an audience most likely to consider your proposal.

In some instances, immigration consultants may also be a useful group to approach.

The Sale Process:

While finding a buyer is the hard part, it is not the end of the process. From here a legal process normally occurs.

It consists of agreeing a term sheet, preliminary disclosure of relevant information, agreeing a sale and purchase agreement, and completing due diligence before a sale is finally closed. All of this takes time, effort and commitment.

Liquidation:

Where your business has reached the end of the line, you need to take legal advice on how to put it into liquidation.

This relatively simple process involves you and your bankers selecting a liquidator, agreeing on the terms under which they will close the business down, and instructing the liquidator to do so.

The process may be simple or complex depending on the assets and whether creditors are involved.

Appointing a liquidator and settling the final affairs of the business is well defined in law and you should seek advice on following the process.

Though a liquidator will run this process, you should be prepared to help wherever possible. Frustrating it will cause you more grief and cost.

Other Options:

In some instances, a management buyout or selling while retaining a job may be an option. If you want a considered view, then approaching an experienced adviser is the key first step.

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