I AM IN BUSINESS BUT LOOKING TO SELL
3. 9 Steps for selling my business
Now that you have decided selling is the right course of action, it’s time to go through the steps required to make this happen. These steps will give you an overview of the process for selling a business. Later, we’ll go into more detail about strategies for selling a business at the best price, valuing your business, and building a profit plan.
1. Do I need professionals to assist me?
A good accountant, business broker, or solicitor has the skills and experience to guide you through the selling process. They can assist you with meeting and understanding legal requirements, and provide advice on maximising profitability.
A reputable professional will make the selling process easier and less stressful, while also providing you with the tools and knowledge to achieve your selling objectives. This is why many business owners choose to engage a professional to support them.
Finding the right professional to support you is vital. Before you choose someone, consider the following:
- Is the professional certified to provide advice about selling a business?
- Do they have positive online reviews? Check their Facebook, LinkedIn and other reviews.
- What else does the Internet say about them? Do a quick Google search to find out.
- Do they have experience in your industry? Ask them to provide background.
- Do you get along with them? Have a chat and see if your communication styles align.
2. Work out what you’re selling
Knowing what parts of the business you’d like to sell helps you to value your business more accurately. This is essential if you’re going to price it right and optimise the return on your investment.
Consider the following factors:
- Are you looking to sell your business outright (including all assets)?
- Are there any assets you don’t want to sell?
- Will you sell your registered business name?
- If you own property through the business, is this for sale too?
- Is the intellectual property (IP) associated with the business for sale?
3. Valuing your business
In order to get the right price for your business, you’ll need to value it to see what it is worth. We’ll go into more detail about how to do this later. But for now, here are three of the most common methods for valuing a business:
- Determine the net worth of your business – by calculating the difference between the assets your business owns and the liabilities your business owes. Assets can be tangible, like land, equipment, and machinery, or intangible, like intellectual property and goodwill.
- Analyse the market – take a look at other businesses on the market that do similar things to your own. Then, find out what they sold for. Although this is not a formal valuation, it does offer a starting point for selecting a selling price that aligns with the market.
- Return on investment (ROI) – work out the net profit from your business, and use this figure to determine its value.
4. Find the right buyers for your business
Now you know what parts of your business you are selling, and what the going price is, you’ll need to find people interested in buying your business. The methods you use to advertise will depend on the industry you’re in, and the kind of business you are selling.
Here are some ways to find potential buyers:
- Online selling platforms related to your industry. E.g. dedicated Facebook pages, industry websites and commercial selling pages.
- Existing networks, such as family, employees and friends.
- Word of mouth, through current and past clients, and other people in your industry.
- Business brokers and commercial real estate agents.
When negotiating with a prospective buyer, always make sure the information provided is correct. If any information shared (verbally or in writing) is later discovered to be untrue, you may be liable for misleading or deceptive behaviour.
When negotiating, you’ll need to cover:
- The selling of the business.
- The deposit amount (typically 10% of the selling price).
- The settlement period.
- If there will be handover training for the buyer (and what it involves).
- Arrangements regarding existing employees
6. Contract preparation
When selling a business, an intermediary often draws up the contract of sale. This contract must follow requirements in your state, and shouldn’t include any false statements. It’s always worth having a solicitor check the contract over, to ensure it is correct.
The contract should include:
- Assets to be transferred – this may include equipment, fittings, stock, property and any intellectual property.
- Relevant liabilities – including anyone the business owes money to (creditors) and if relevant, the lease on the business premises.
- Employee considerations – including whether the employees will continue with the business after the sale, entitlements, and other relevant concerns.
- Statements relating to issues that may arise – for example, if mistakes are found in the contract or the buyer changes their mind.
When selling a business, some contracts include a ‘restraint of trade’ clause, which prohibits you from trading in your profession after the business is sold. Be sure to understand all of the clauses in the contract, and how they impact you after the sale.
7. Look after your staff
Selling a business can be stressful, not just for you, but also for your employees. History shows the best way to navigate selling a business is to communicate clearly with your staff, so they know how the sale will impact them.
If employees are being transferred with the business, be sure to let them know as soon as possible. If their employment ceases when the business is sold, they need notice of this too. In either situation, their position with you ends when the business is transferred.
If you cannot notify employees about their position ending with you, you need to provide them with payment in lieu of notice. (Head here1 for more on this.)
If employees are being transferred along with the business, you’ll need to provide the new owner with any information that is relevant to their employment, including entitlements.
8. Sort out tax and legal issues
Before selling, you’ll need to finalise any outstanding tax or legal issues related to your business. A good accountant should be able to assist you with ensuring your tax issues are taken care of. Just some considerations include:
- Whether Capital Gains Tax (CGT) and Goods and Services Tax (GST) applies to the business sale.
- Whether GST needs to be included in the price of individual business assets.
- If GST credits need to be repaid.
- If CGT concessions are available to you.
- Insurance requirements, including runoff cover (insurance for legal claims made once the business is sold).
Knowing what tax obligations you’re likely to encounter when selling your business will help you stay ahead of surprise costs, and make plans to handle them. If you struggle to pay your tax obligations, the Australian Taxation Office (ATO) may be able to assist you with a payment plan.
9. Transferring the business
When your business sells, you will need to transfer it to the person who purchased it. Until this is done, any lease or other obligations related to the business are your responsibility.
- Transferring leases, licenses, and relevant permits.
- Finalising tax returns, as well as activity statements and installment notices.
- Transferring or canceling your business name and canceling your ABN.
Planning transfers early is important as in some cases, license transfers can take up to 12 months to process. If you need support with any part of this process, please get in touch with Connolly & Associates.
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