If you are considering selling your business, whether it be sooner or later, the more prepared you are the better the outcome may well be. As Benjamin Franklin said – “if you fail to plan, you are planning to fail”.
As you can see from below – there are so many steps to take and it likely won’t be an overnight process. But there is help at hand to make the process as smooth as possible.
Speak with your adviser sooner rather than later to ensure your structure and business is best placed for sale, and you are best placed to minimise the tax on your sale.
Key items to consider:
- People will feel more comfortable if the purchase is transparent and adequate information provided. Make sure you have all our documents ready to provide information and have purchasers feeling confident in the decision.
- Find the key selling points for your business and make them stand out. Don’t highlight any potential negative, but don’t hide them either.
- Planning is key to a good outcome – get the advice you need at the start to make the whole process smooth.
- The earlier you start the process the better. For example if you are wanting to sell the business in 5 years, start preparing now and work on improving the value by focusing on what a potential buyer would want to see to give you a maximum return on sale of the business.
Some Steps to take:
- Timeline for sale – prepare for when you want to sell and plan your business into the best position for sale. Do you need to sell quickly? Or is it part of a longer term strategy? Part of a retirement strategy perhaps?
- What are you selling? A business or an entity? You may need to separate out assets if an entity sale is possible. Consider all assets such as IP.
- Understand the ownership of the business and its structure and the potential CGT impact – undertake any steps you may need to position yourself most appropriately (including potential restructure) to reduce tax upon the sale. Speak to your adviser sometimes you can achieve a better outcome after tax for a lesser sale price.
- Speak to your accountants about concessions that may available to you upon the sale
- Review the documents people will want to see – check your profit and loss, review if any normalisations are needed, check your non balance sheet items such as contracts, leases (review legal), stock lists etc. Review your systems and processes for the new owners.
- Forecasting documents – showing the potential growth going with the new business
- Undertake an analytical analysis of the financial statements with your accountant.
- Do you have staff? Will they be working with the new owner? You may need to consider their contracts and entitlements. Will there be a period of which you will work new owners?
- Undertake a vendor due diligence – find any problems before the market does
- Consider any areas of non-compliance and consider a rectification strategy
- Consider any warranty clauses
- Prepare information memorandum for potential purchasers
- Consider advertising strategy and potential purchasers being aimed for – will you be selling yourself or via a business agent
- Get a business valuation – work with a qualified valuation expert to understand the value of business and a sale price you should strive for
- Consider any earn out arrangements to be part of purchase agreement
- Prepare a data room for ease of access to potential purchasers
Common issues that occur:
- Inadequate or incomplete Corporate Secretarial records.
- Inadequate or non-existent employment contracts with staff which would include restraint clauses.
- Arrangement with key suppliers or customers that are not secure.
- Third party consents – for example property leases being transferred.
- Government or regularity (including PPSA) and privacy compliance needed.
- Is your IP owned correctly by your business?
- Intermingling of business and personal finances – consider inter-entity and director loans in your business.
- Lack of detailed records and reports for purchases, sales and financial reports.
- The quality of the vendors earnings – are they maintainable and predictable? Are they dependant on variables beyond the vendors control and how this affect can your valuation.
- Existing or potential claims for litigation.
- Consider material trading risks for the business.
There is a significant amount of time and effort required to sell your business and achieve the ultimate outcome. However, now you know the steps you can confidently begin preparing your business for sale.
Remember, it won’t happen overnight, so adjust your expectations accordingly and get organised. If you put in the legwork and get all the pieces in place, you’ll be well on the way to your next adventure.
Planning is key whether you are think about exiting, bringing in partners, planning for retirement the earlier you start the process the better. Please contact your DFKBKM representative to discuss how best to achieve your desired outcome.