How to sell your small business in Australia
Small and medium-sized enterprises account for 99.8 per cent of all business in Australia. Undoubtedly, it takes lots of effort, sacrifices, and struggles to get a small business up and running. That is why selling one is such a complicated process both emotionally and logistically. While the sale of each small business is unique, there are several considerations and well-established steps you can take to find the right deal. If you are ready to sell your business, consider the following steps.
Step 1: Assess Your Reasons for Selling
Making hasty decisions when selling an existing business may ultimately lead to regrets later. Ideally, consider the real reason to sell your small business and whether it is the right one. At this point, get professional advice to ensure you are making the right decision. You may also wish to involve your family members and close friends for personal advice on your decision. If you are considering selling due to financial burdens, it may be a good idea to exhaust all your available options first before committing to a sale.
Step 2: Hire Professionals
Once you are convinced selling your business is the best decision under the prevailing circumstances, hire a reputable and accredited accountant, business broker, or solicitor to help make the process less stressful. Licensed business brokers and accountants can provide much-needed guidance regarding the legal and government requirements as well as the current profitability and market trends in your industry.
Step 3: Decide the Elements to Include in the Sale
Make a list of all items to include in the sale of your business. Determining what exactly is for sale helps ease the valuing process of the business. Some of the elements to include or remove from a sale are:
- Business assets
- Registered business name
- Properties that the business owns.
Step 4: Evaluate Your Business
Business valuation refers to a process used to estimate the value of your interest in a business. Valuation also helps the parties in a sale determine the price they are willing to pay or receive to affect the sale. Ideally, business valuation can take various forms, but the most common methods include:
- Market analysis: This involves making comparisons between your business and similar businesses that were recently sold off. Although this is not a formal valuation method, it provides insights into the possible market price
- Net worth calculation: Calculating a business’s net worth involves finding the difference between the business assets and liabilities. Assets in a business include both tangible things such as land, building, machinery and intangible assets such as software solutions, goodwill, intellectual property, and brand recognition
- Return of investment (ROI): You can also use the business’s latest net profits to determine the value of your business.
Step 5: Find Buyers for Your Business
There are several methods to find an ideal buyer for your small business. However, the specific method you will choose will depend on your business type and industry. Notably, before you provide any information on a sale, ensure it meets your state or territory requirements. Some of the most effective methods to find buyers include:
- Using the services of a business broker
- Using online listing sites/ market places that specialise in buying and selling businesses
- Leveraging local listings and networks
- Selling it to a business partner or employee
- Using digital and traditional media
Step 6: Negotiate the Sale
Once you have found a perfect buyer for your business, your next step is negotiating the terms. Most business sales are complicated, and you may need the help of several advisors. Get a professional accountant to look over the financials and the tax implications of the sale. You may also need an experienced lawyer to go through the terms of the deal and ensure it takes care of your interest. An excellent sale negotiation focuses on a range of things such as:
- The sale price
- The deposit amount, which is typically 10 per cent of the sale price
- The settlement period
- The handover training, if applicable
- Arrangements for existing staff
Step 7: Contract Preparation
When drawing up a sale contract, ensure it conforms with your state or territory requirements. Essentially, ask a solicitor to go through the contract to ensure it covers all aspects of the sale and has no errors or false statements. The elements of a sale contract may include:
- The relevant assets being transferred such as the property, equipment fittings, stock, rights to use brand names, and more
- All relevant liabilities, including the lease of the business premises and creditors
- The responsible party for employees and their entitlements, including whether the employees will be transferred with the sale
- Statement on the steps to take in unforeseeable circumstances, for example, if the buyer decides to withdraw their interest before a sale is concluded.
Step 8: Taking Care of Employees Interest
It is crucial to have a candid talk with your employees about the sale of the business and how it affects them. A sale of a business automatically ends your contract with the employees. Ask them whether they prefer being transferred to the new owner or whether they will have their employment terminated.
Importantly, notify the employees of the impending changes well ahead of time. You should also provide payment in lieu of notice as required by Australian law. If the employees are transferring to the new owner, ensure you provide all employee details to the new employer, including employee entitlements.
Step 9: Finalise Tax and Legal Issues
Your business sale may be subject to a range of taxes, including the Capital Gains Tax (CGT) and Goods & Services Tax (GST). If your business is registered for GST, ensure you include GST tax in the prices of the business assets. You should also find out whether a CGT concession is available for your small business. Additionally, determine the tax obligations that may arise from the sale of your small business and plan to meet them. It is also essential to consider further legal requirements for your business.
Step 10: Transfer the Business to a New Owner
After selling your business, your final step is to transfer it to the new owner. A business transfer may involve the following steps:
- Transfer of leases, licenses, and permits
- Finalising text returns installment notices and activity statements
- Cancellation of ABN
- Cancellation or transfer of business name (where applicable)
Selling your business is one of the most important decisions you will make as an entrepreneur. If you’ve decided it’s time to sell your business, it is always best to hire qualified business professionals to ensure transactions go smoothly and profits are maximised. If you have any questions or need help to get started, don’t hesitate to contact us.