BUSINESS INFORMATION
Selling a business
Deciding whether to sell, preparing for the sale, setting an appropriate price, and finalizing the transaction are key steps in the process of selling your business. Proper planning is essential to ensure you achieve the best possible outcome.
Determining if Selling is the Right Choice
Before committing to sell, evaluate whether:
- You genuinely want to sell or simply need a break from running the business.
- Alternatives, such as hiring external management, have been explored.
- You have the backing of family and friends.
- Current market conditions are favorable for a sale.
- The proceeds from the sale will sustain you until you secure another source of income.
- There are any restrictions on starting a similar business after the sale.
- You fully comprehend the implications of selling by consulting a financial advisor, accountant, or lawyer.
Preparing your business for sale
Ideally, preparation should begin long before listing your business. Key steps include:
- Documenting processes and policies to simplify operations for the new owner.
- Ensuring employees have clear, written job descriptions.
- Securing written agreements with suppliers and reviewing contracts to avoid expiration during the sale.
- Selling outdated or slow-moving inventory.
- Assessing plant and equipment, and selling unnecessary items.
- Presenting the premises in good condition.
- Reviewing the lease agreement to confirm it can be transferred to the new owner and won’t expire during the sale.
- Collecting outstanding debts and settling creditor payments.
- Preparing audited financial statements for the past three years.
- Reducing employee leave liabilities by encouraging them to take leave, if feasible.
Potential buyers will conduct their own due diligence, but preparing a comprehensive buyer’s information pack is advisable. This pack should include:
- A confidentiality agreement.
- A description of the business.
- Customer or client profiles.
- Industry insights, including performance against benchmarks.
- A detailed list of business assets (e.g., procedures, equipment, stock, intellectual property, client lists, lease details, employee qualifications, key relationships, and contracts).
- Testimonials from suppliers and customers.
- Audited financial statements for the past three years.
- An offer and acceptance form.
- A draft contract of sale.
Setting the right sale price
Valuing a business can be challenging. Seek guidance from a financial advisor, accountant, or a licensed business broker experienced in selling similar businesses.
Tip
Return on investment (ROI)
The most widely used method, calculated as:
Sale price = (net annual profit before tax × 100) ÷ ROI percentage.
Consult your accountant or broker for industry-specific ROI percentages.
Asset value
This method totals the business’s assets, including stock, equipment, property, vehicles, intellectual property, client lists, and goodwill.
Sale price = total assets + goodwill.
Goodwill valuation can be complex, so professional advice is recommended.
Market value
Typically used for professional practices (e.g., legal, veterinary, or insurance firms) and rarely for retail businesses.
Sale price = turnover × industry multiple.
Research the market, compare similar businesses, and set a competitive price.
Finalizing the Sale
Selling a business requires specific expertise and resources. Engaging a licensed business broker or commercial real estate agent can be beneficial. If you choose to sell independently, consider the following:
You may also need to make payments to eligible staff under the Commonwealth Paid Parental Leave Scheme.
Leverage your network, including competitors, clients, employees, friends, and family, to spread the word. Your accountant may also know potential buyers. Advertise through:
- Business sale websites.
- Local, state, or national newspapers.
- Industry or trade publications.
Use general terms in advertisements and avoid disclosing the business name.
Non-genuine buyers, such as competitors or suppliers, may attempt to gather information. Ensure potential buyers sign a confidentiality agreement before sharing your business information pack.
By following these steps, you can navigate the sale process effectively and achieve a successful outcome.
After completing due diligence, a potential buyer might initiate discussions to finalize terms before submitting a formal written offer. To prepare for these negotiations, consider the following:
- What specific conditions are you seeking from the sale?
- Which aspects are you willing to compromise on?
- At what stage would you decide to discontinue negotiations and withdraw from the deal?
Engaging a professional, such as a business broker, settlement agent, or lawyer, is advisable when selling your business. Their involvement can help avoid potential issues and ensure the transaction is legally sound.
The sale agreement should comprehensively outline all negotiated terms and conditions, particularly if the business is sold as a going concern. This ensures clarity and mutual understanding between both parties.
More information
Watch the ATO’s selling your business video to help you understand your regulatory obligations when selling or closing your business
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