To get your business ready for sale, there a few important things you need to consider. Because of this, it is no wonder that almost 80 per cent of Australian businesses are not attractive to buyers in their present conditions and 96 per cent of business owners have not drafted a plan for generation transfer.
Good planning and preparation in terms of legal, taxation and operational matters are the ingredients to a successful sale. To ensure the success of the sale of your business, here are a number of important items to consider:
Know your buyer
To help you know the right sales strategy, whether through succession or selling on the open market, know who your likely buyer will be.
If you’re planning to sell to relatives, avoid potential familial conflict by drafting a formal family succession agreement. These kinds of agreements are typically contained in the business owner’s will.
If you intend to sell on the open market, make sure that this plan is not in conflict with the expectations of a relative who may be expecting to take over the business in the future.
State specifically the asset you’re selling
Next, make a decision on what you want to sell – your business or the underlying structure that owns the business. The latter is typically a share sale in which a company continues to operate the business. You can get major tax breaks through careful planning in the lead up to the sale.
If you are selling a small business, carefully consider the possible application of the small business concessions from the point of view of a capital gains tax. These concessions are intended to help owners of small businesses and should be utilised if applicable. To activate the small business concessions, the turnover of the business must be below $2 million or the net assets must be under $6 million.
Get rid of unwanted assets
After you have determined your sale strategy, you have to focus on the items that would affect the final price. There are times it would be to your benefit if you segregate non-core holdings, such as the land where the business is standing, from those that are crucial for the operation of the business, in order to set a price that’s within the reach of the buyer.
It is also better to pay out retained earnings to reduce the value of the company’s balance sheet. Obviously, the payments of dividends could have top-up tax consequences for the persons involved, therefore it should be handled well prior to the sale.
Conduct due diligence
Lastly, making sure the business is sale ready will entail doing due diligence or a stocktake relating to things like intellectual property and personal use assets on the balance sheet, and deciding on what terms of the sale will be satisfactory to the seller. You should also consider whether you are willing to work in the business for a period of time following settlement to assist the purchasers with a complete turn over.
Contact PJS Accountants to help you plan your strategy for a successful sale of your business. We offer a complete range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. We have been dealing with local businesses in Capalaba, Cleveland and the Redlands for over 30 years. Our team is always available to take your call and help with your business needs.