A few dollars spent on detailing your car or house before sale can make a big difference to the sale price. Similarly, careful preparation of a business can change the profit multiple at which you sell, and even a small change can make a big difference to your capital gain.
The sale process
Business sales are notoriously fraught with dangers for buyers, so expect buyers to come with a long list of questions. This process is called ‘due diligence’.
To prepare your business for sale
- separate personal and business finances and assets
- streamline the structure of the business by consolidating shareholdings
- organise and document business systems, including people, operating and production, sales and marketing and financial systems
- ensure your accounting records and business tax returns are in order for the last three years
- ensure your staff records are in order, with taxation, superannuation and WorkCover liabilities paid up to date
- ask your staff to clear any accrued leave backlog
- maximise the brand value and position the business for growth by chasing significant contracts over the 12 months before the sale
- keep a close watch on expenses and cut back on any unproductive expenditure in the 12 months before the sale
- update your files – paperwork, staff details, websites, review assets, etc.
- prepare an information kit for prospective purchasers
Visit Exiting a Business for more information.
What is your business worth?
Valuing a business is an art rather than a science. Valuations may be based on multiples of turnover or profit, or on the value of the assets owned by the business. Accountants or business brokers will generally look at what similar businesses in your industry are selling for. In the end, what matters is the price a prospective purchaser is willing to pay.
Be realistic in your expectations. Price is not the only negotiating point. The timing and specific structure of the deal are also useful negotiating points, as are the business name, ensuring loyal staff are retained, and payment terms.
Finding a buyer
Potential buyers can include:
- existing shareholders
- your current management team
- a professional management buy-in team, bringing both capital and skills into your business
- large business' building their brand portfolio
Other factors to consider when selling your business include when is the best time to sell and whether you should make use of a broker or other professional to maximise selling opportunities.
Business brokers specialise in selling businesses, and have the processes in place to advertise your business to a wide range of potential buyers. Professional service providers such as accountants, business consultants and lawyers also have many potential buyers among their clients.
The sale of a business generates a capital gain that may be taxable. In recent years the Australian Government has introduced several measures to lessen the impact of capital against taxation on the sale of a business, as one way of rewarding entrepreneurs. As these regulations are complex, and change from time to time, you should consult your accountant about the implications.
Want to know more?
Exiting a business tips
Things to consider when selling a business or you are in financial difficulties.
Tax implications (PDF 95KB)
Ensure your accountant or financial advisor is actively involved in any exit plans.
When you decide to sell your business, for whatever reason, you will need to take the time to plan an exit strategy in order to get the best return on your investment.