What you need to consider if you want to sell your business

There are a number of items that need to be considered to get your business “sale ready”. It’s therefore not surprising nearly 80% of businesses in Australia are not saleable in their current state and an even higher percentage (96%) of owners have not defined a plan for generation transfer.

A successful sale is the product of good planning and preparation from a legal, tax and operational perspective. To ensure you’re ready to execute a successful sale of your business there are a number of things you need to consider if you want to sell your business.

Understand your purchaser

Identifying who the likely purchaser will be will help determine your sales strategy, whether you intend to sell on the open market or through a family succession strategy.

If you intend to sell to one or more family members it’s important to have a formal family succession agreement in place to avoid conflict between siblings. Such arrangements would normally need to be reflected in the will of the business owner.

On the other hand, if you’re planning to sell your business on the open market you must be careful to ensure this plan does not cut across the expectations of a family member who may have an expectation of taking over the business when mum and dad retire. Promises that “the business will be yours one day son” can lead to messy arguments in the courts.

Be clear about what you’re selling

The next consideration is to decide whether it is your business that will be sold or the underlying structure that owns the business (usually a share sale where a company carries on the business). Sometimes careful planning in the lead up to sale can achieve significant tax benefits.

If you’re a small business, give careful consideration to the potential application of the small business concessions from a capital gains tax perspective. These concessions were designed to assist small business owners and should be used if possible. For the small business concessions to apply, the turnover of the business being sold must be less than $2 million or net assets of the business must be less than $6 million.

Clear out unwanted assets

Once the manner of sale is determined, you then need to consider the factors that will influence the ultimate price. Sometimes it can be better to separate out non-core assets, like the land the business sits on, from those that are necessary for the conduct of the business to make the business more affordable to a would be buyer.

It’s also a good idea to pay out retained earnings to trim down the value of the balance sheet of the company. Of course the payment of dividends may have top-up tax implications for the individuals concerned so that would need to be managed well in advance of sale.

Do your due diligence

Finally, ensuring assets are ready for sale will involve conducting due diligence or a stocktake around items such as intellectual property and personal use assets on the balance sheet, ensuring that trade debtors and creditors are up-to-date, and determining what the likely terms of sale will be that will be acceptable to the seller. It’s also important to consider whether you’re prepared to work in the business for a time after settlement to support the buyers with a comprehensive handover.

This article was first published on SmartCompany.

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