Selling a business is not as simple as placing an advertisement and negotiating a price. There are a number of steps involved and some of them are outlined below. If you’re thinking of selling your business any time in the future it is worth having a discussion with us to go through the process.
- Ask yourself “Why am I selling?”
When a potential buyer looks at your business for sale, one of the early question you’ll be asked is “Why are you selling?”.
Selling to retire or selling to pursue other interests are typical reasons why owners sell their businesses. However, there are other reasons like financial difficulty or reducing performance of the business. In these cases it is critical to work with your accountant and/or a business advisor to ensure you’re making the right decision to sell. You also need to consider whether there are any tax implications or other obligations that result from the sale transaction (e.g. employee entitlements if you have employees).
- Engage professionals
Engage a reputable business broker, accountant and solicitor to help you sell your business. There are more than 30 steps to go through to get a successful outcome and business brokers know how to navigate the complexities that typically arise, and coordinate all parties to achieve the sale.
Business brokers are a great source of information including legal and government requirements, advice about the profitability of your business, market trends for your industry, and market appraisals to work out what your business might be worth. They can make the process of selling your business less stressful, quicker and smoother.
The Australian Institute of Business Brokers (AIBB) is the peak professional body for business brokers in Australia. Make sure your business broker is a member and has the credentials to assist you.
- Ask yourself “What am I actually selling?”
Make sure you know exactly what you’re selling. It can have quite an effect on the value your business. Ask yourself:
- Do you want to sell the business outright including all the assets?
- Which assets don’t you want to sell?
- Do you want to sell your registered business name?
- Are you looking to sell the business’ intellectual property (IP)?
- Do you want to include any property the business might own?
- Appraise your business
Valuing your business is about working out how much your business is worth so you can set the right price when selling. A business broker can perform a market appraisal which typically includes the approaches below:
- Researching the market – comparing your business to similar businesses on the market or that have recently been sold. It provides a guide to your possible market price.
- Calculating a business’s net worth – compare the difference between what your business owns (assets) and what your business owes (liabilities). You need to consider both tangible assets (such as machinery, buildings and land) and intangible assets (such as goodwill, brand recognition and intellectual property).
- Using return on investment (ROI) – using your business’ net profit to work out the value of your business.
A market appraisal is not a formal valuation. It is an opinion on what your business might sell for in the market. A formal valuation must be conducted by a registered business valuer and can cost more that $5000. Ask yourself whether a formal valuation is required. Market appraisals tend to be more than sufficient in determining what your business might sell for.
- Attract buyers for your business
There is an old saying “You can’t sell a secret!”. You need to advertise the sale of your business to potential buyers through different methods, which may include:
- digital and traditional media
- Social media
- your existing networks (e.g. family, friends, or employees)
- word of mouth
- current or former customers of your business
The way you advertise will depend on your business type, industry and contacts.
Check whether there are any requirements in your state or territory about what information you need to give potential buyers. A business broker is best placed to help you with all of this.
Special note: It is important to provide as much detail as possible when advertising your business to ensure it attracts the right interest. Being vague about location and secretive about the business name and other details will only reduce enquiries and extend the amount of time your business may take to sell.
- Negotiate the sale
When negotiating the sale, make sure the information you give about your business is accurate and true. If you say anything or provide information that is later found to be untrue, it may be considered misleading or deceptive behaviour. A business broker will create a selling document often referred to as an Information Memorandum (IM) or Business Profile which is a summary of the key details and facts about the business.
You need to agree with the buyer on a range of things, including:
- sale price
- deposit amount (usually 10% of the sale price)
- settlement period
- handover training (if any) for the buyer
- arrangements for existing staff
- Potential retention clauses
- Competitive restrictions
- Prepare the contract
Often, an intermediary will draw up the sale contract for you. A solicitor specialising in business sales is the best person to do this because they can draft special clauses and highlight any areas that might put you at risk. You need the right person for the right job.
The solicitor can confirm that the contract doesn’t include any false statements, and covers all aspects of the sale, including:
- all the relevant assets that are being transferred, including property, equipment, fixtures, fittings, stock, and any rights to use any names
- all the relevant liabilities, including creditors (people or businesses that your business owes money to) and the lease of the business premises
- responsibility for employees and employee entitlements, including whether employees are to be transferred with the sale
- statements about what will happen if any issues arise (for example, the buyer decides not to proceed, mistakes are discovered in the contract, etc)
Make sure you’re aware of all the terms and conditions of the contract before deciding to sell.
- Consider your employees
It’s important to communicate with your employees and let them know whether they’ll be transferring across to the new owner or ending their employment due to the sale of the business. In both cases, a transfer of business ends an employee’s position with you. You must give your employees notice of ending their employment with you or provide payment in lieu of notice.
When employees transfer with the business, you need to give all relevant employee information to the new owner. There are some employee entitlements that the new owner must recognise and others that the new owner doesn’t have to recognise.
- Finalise tax and legal issues
Consider whether Capital Gains Tax (CGT) and Goods & Services Tax (GST) apply to the sale of your business. For example, if your business is registered for GST, you may need to include GST in the price of your individual business assets- external site or repay GST credits.
If you consider carefully what tax obligations will arise from the sale of your business you can also plan to meet them and avoid being in a debt situation. If you do find that you cannot pay your taxes on time, you may be able to get help through an ATO payment plan.
Find out more about things to consider when changing, selling or closing your business from a tax perspective through your accountant.
Consider any insurance requirements for your business, such as run-off cover (where you are insured for any legal claims that are made after you sell your business).
- Transfer your business to the new owner
Once your business is sold, you need to transfer your business to the new owner. You need to:
- transfer leases, licenses and permits
- finalise tax returns, activity statements and instalment notices
- cancel your ABN and transfer or cancel your business name
You’re still responsible for any lease agreements and obligations that are part of your business until they are transferred to the new owner. License transfers can take up to 12 months, so it’s important to plan for this early in the process.
Source: business.gov.au
