How to Sell Your Business in the Philippines: Entrepreneurs sell their businesses for a variety of reasons. Whether you’re ready for retirement, feeling overworked, moving to another country, or just ready to enter the next stage of your life, selling your business can be extremely overwhelming yet rewarding.
Unfortunately, the process of how to sell a business is not as quick as drawing up a contract for the sale. Some laws and logistics can make the sale process tedious. So here we’ll provide simple pointers on how to sell your business in the Philippines and discuss the legal considerations for the lawful sale of your venture.
6 Steps in Selling a Business in the Philippines
1. Determine your company’s value
Most entrepreneurs in the Philippines think they have a clear grasp of their business’ worth. But most of the time, their preconceived notion deviates from the actual value. Understanding the worth of your business is the bedrock that forms the credibility of your asking price.
So before you list your business’ sale price too high or too low, one thing that’s best to do is to bring in a valuation expert. A third-party valuation expert will provide you with a realistic estimate of the company’s worth. You may also find a qualified appraiser who can evaluate the business’s worth with detailed documentation and report.
Ultimately, the report can help bring credibility to your asking price if potential buyers question the amount. Moreover, the valuation will give you a rough estimate of what you can expect. Like selling a house, a real estate agent can evaluate how much the property is worth. Though the list price could remain unchanged in the market for a long time, putting in some effort can help tip the market value up. The same goes with selling a business.
If you’re not satisfied with the valuation, we recommend not selling yet. A good exit strategy is to work on your profitability first or sell while the company is scaling.
2. Prepare all financial and legal paperwork
The focal point in selling a business is your financial records. Ensure that all the important documents are in-tact and ready before even putting the business up for sale.
Disorganization or inconsistencies in your books are red flags for potential buyers. So we recommend going over them many times to make sure they’re immaculate. Here are some pertinent documents to prepare:
- Tax returns (at least for the last three years)
- Financial statements (updated balance sheet, income statements, and cash flow statements)
- Employment agreements
- Confidentiality agreements (if any)
- Business lease agreement (if any)
- Contracts with any stakeholders
- Seller financing agreements
3. Hire a broker or sell independently
Again, selling a business in the Philippines is not necessarily a walk in the park. Aside from the formal documents involved, you must also weigh whether you should sell the company on your own or if you should get a transaction expert to do it for you.
3.1 When to sell on your own
Similar to homeowners who manage to sell their houses without a realtor, business owners have also managed to sell their business without hiring a business broker. Usually, those who want to sell their business independently are only successful if they have already found an interested buyer. Once they make arrangements with a buyer, they may still hire an attorney to manage the business ownership transition and paperwork.
If you’re planning to sell the business to a trusted employee or a relative, the scrutiny will remain, but there’s more headroom when selling to entities you personally know.
3.2 When to hire a business broker
Know that when you want to sell your business in the Philippines through a business broker, there may be some extra fees associated. However, a business broker can help you get the best possible price and sell your business quite faster than you could do on your own. Remember, these experts work on commission, so it’s in their best interest as well to sell the company for maximum value.
4. Find Pre-Qualified Buyers
When trying to sell your business in the Philippines, it’s best to have at least three pre-qualified buyers. In this way, you can be confident in what your buyers can afford and how much a lender is willing to loan them.
Finding the right buyer is the most time-consuming portion of selling a business. Finalizing the sale can take six months up to an indefinite period so we advise that you scrutinize every buyer that wants to buy you out. In some cases, competitors can hire someone to act as a buyer on their behalf just to review your financials so make sure to let each one sign a nondisclosure agreement to protect your private information.
5. Negotiate the terms
Selecting a buyer does not conclude the buy-out deal. As we’ve mentioned, there are legal considerations and financial matters at stake, aside from the purchase price.
Some areas to discuss include:
- Seller financing where you may offer your buyers a loan that covers a portion (or all) total purchase, which buyers will repay in installments with interest.
- Any liability that is shouldered by both entities of the sale
- Employee contracts
- Earnout deals
- Asset retention or liquidation
We suggest hiring a lawyer familiar with contract law to handle most of the phase lest you want to be vulnerable if you miss any vital information in the contract.
6. Finalize all documents and close the deal
Once everything is settled and both parties have agreed on the terms, you can proceed to close the deal. It’s only a matter of signatures and initials, and the company is sold.
Where to sell your Business in the Philippines
Once you learn the 6 steps mentioned above on how to sell your business in the Philippines, the next best thing is to get your business some exposure with the largest business-for-sale networks. We recommend the following:
- Easy Buy Sell Business– a local online platform to connect business buyer and seller, that provides unlimited free postings without expiry.
- Link Business– where business brokers (also called business intermediaries) assist buyers and sellers of privately heldcompanies in the buying and selling process
- SMERGERS– a platform where you can sell or finance a business. It automates deal origination, valuation, matching and introduction of businesses and investors across the globe
Legal Considerations Before Selling a Business in the Philippines
According to an article by Nicolas & De Vega Law Offices, the primary statute that covers the sale of a business is the Bulk Sales Law (or Republic Act No. 3952, amended by Republic Act No. 111) which aims to protect creditors and suppliers from secret bulk disposal of all, or substantially all, of merchant’s stocks or goods.
Any sale involved in the business qualifies as a bulk sale if:
- The sale, transfer, mortgage, or assignment deviates from the business’s ordinary course of trade and regular operations.
- The sale, transfer, mortgage, or assignment is of all, or substantially all, of the business or trade.
- The sale, transfer, mortgage, or assignment is of all, or substantially all, of all the fixtures and equipment involved in the business operation.
You don’t fall under the Bulk Sales Law if:
- The sale is made under the ordinary course of trade
- The creditors sign a waiver
- An assignee, executors, administrators, receivers makes the sale in insolvency
If the Bulk Sales Law covers the sale, here are things you should do:
- Furnish a sworn statement to the buyer that lists the names, addresses, and amounts owed to every creditor.
- The seller must notify the creditors at least ten days before the sale
- The seller is required to prepare a full-detailed inventory of all stocks to be sold
- The seller must apply for the purchase money to pay the bonafide claims of creditors
If the above are not met, the bulk sale is considered fraudulent and void even if you made the sale in good faith. This could incur fines and criminal liability based on court proceedings.
Knowing the legal repercussions and provisions is a prerequisite to selling a business. And in conjunction with that, here are helpful tips on how to sell your business in the Philippines.
5 Tips on How to Sell A Business in the Philippines
Improve your company’s performance
As mentioned above, it’s like selling a house. You won’t get good market value if you focus on selling while neglecting your house in the process. Selling a business in the Philippines takes time. While you are in the process, continue coming to work daily and make every effort to boost your sales.
As a rule of thumb, strong sales mean better valuation and negotiating leverage. Conversely, a plateau or dipping performance presents a huge red flag to buyers and makes the sale vulnerable. For some extra ideas on how to improve your company’s performance, take a look at our free business plan!
Market your business
Hiring a broker doesn’t mean leaving all the marketing up to them. Have ample knowledge about Business Marketing in the Philippines and do your part in promoting the business, but make sure that your goals align with your broker’s so you can work towards a singular end.
Don’t let emotions get in the way
Business sales can be very emotional, especially for family businesses or small businesses that people have built from scratch. Emotions commonly rush in when deals seemingly neglect all the sleepless nights and tears shed to keep the enterprise pulling through. Unfortunately, business deals are all about facts. Ensure that you keep your emotions at bay and let the valuation data speak for itself. You can always decline an unacceptable offer if you wish.
If possible, get paid upfront
Although there are seller financing options, such an arrangement can impose delays and problems when selling your business. Some circumstances would be the failure to receive payment terms agreed upon or when legal recourses are being an additional burden on your end. Another would be if the company declares bankruptcy under new management, the new owner might not have any money left for you. To avoid these challenges, ensure the terms of your deal require an upfront payment.
Scrutinize your buyers properly
Knowing that some buyer is interested in buying you out can be exhilarating. But not every buyer leads to a sale. Treat them like window shoppers that are only looking for what’s in it for them and don’t get swayed by offers right off the bat. Take time in choosing and be diligent in waiting for additional leads.
When you get at least three prequalified buyers, you may start weighing your options based on their terms. When you are still learning how to sell a business in the Philippines, it can be very taxing. But with a good amount of patience, perseverance, and dedication, it can be extremely rewarding and might even pave the way towards your financial freedom.
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