Selling a business is rarely a quick job. The owners who get the best result usually start preparing long before the sign goes up. Buyers look closely at profit, records, staff and premises. Small gaps in any of these can lower the price or put a buyer off.
This guide covers the main steps to plan ahead. It draws on advice from state small business agencies and the Australian Taxation Office. Rules and support differ between states, so check what applies where you trade. A good accountant and lawyer will also be part of the process.
Start early and be clear about why you are selling
The Small Business Development Corporation in Western Australia suggests preparing well before you put the business on the market. Its advice on selling a business also suggests asking some honest questions first. Do you really want to sell, or do you just need a break? Are market conditions right, and will the sale give you enough income until you have another source?
Check whether a sale could stop you trading in a similar business afterwards. The SBDC lists this as one of the things to look at before you decide. If you plan to keep working in the same field, raise it early with your lawyer. Knowing your goals helps you judge every offer that comes in.
Lift profit and tidy the numbers
Buyers pay for future earnings, so profit matters most. Business Queensland suggests cutting costs and improving your profit position before a sale. It also notes that a business that must be sold quickly, or that is not profitable, is less likely to reach the owner’s preferred price. That is a strong reason to sell on your own timetable.
Records are the next priority. The SBDC recommends audited financial statements for at least the previous three financial years. Collect outstanding debts, pay creditors and settle any legal, tax or super matters. Put customer and supplier deals into written contracts rather than relying on a handshake.
Work out what the business is worth
The SBDC describes three common ways to value a small business. The return on investment method is the most common and uses net profit before tax and an industry rate of return. The asset method adds up items such as stock, equipment, vehicles, intellectual property, the client list and goodwill. The market method multiplies turnover by an industry figure and is mostly used for professional practices.
Goodwill is hard to value, so get advice from an accountant or registered business broker. Research similar businesses to set a competitive price. Business Queensland also suggests getting an external valuation so your listing reflects a realistic market value. Brand recognition and intellectual property can add to the price as well.
Make the business easy to take over
A buyer wants a business that keeps running without you. Document your processes and policies, and make sure staff have written job descriptions. Business Queensland suggests building a management team that can guide new owners through the handover. Updated business, marketing and succession plans help show the business can stand on its own.
These documents help just as much if you later hand the business to family instead of selling. Planning your exit also links to personal planning, and this guide on how to start estate planning is a sensible companion read. Talk to your adviser about how the business fits into your wider plans. A clear plan protects your family as well as your staff.
Present the premises and assets well
First impressions count during inspections. Business Queensland warns that a business that looks tired, dirty or unpresentable is less likely to reach the preferred price. Fix broken equipment and make sure assets work well. Some spring cleaning services for your business space before inspections are a low cost way to lift that first impression.
Worn or stained floors can undo that effort, so look at the office carpet cleaning methods professionals use. The SBDC also suggests selling plant and equipment you do not need, and clearing obsolete or slow moving stock. If you are holding items you plan to keep, a reputable commercial storage facility can keep them out of the way. That leaves buyers with a clear view of what is for sale.
Check your lease, contracts and staff leave
The SBDC suggests reviewing your lease so it does not expire during the sale. Check that it includes a provision allowing it to be transferred to a new owner. Review supplier agreements and other contracts in the same way. Business Queensland adds that buyers may prefer either a short or long lease, so think about what suits your likely buyer.
Staff leave can also affect the deal. The SBDC suggests reducing leave liabilities by encouraging staff to take leave where possible. Deciding when to tell employees is a judgement call. Business Queensland notes that being open with key people can reduce speculation and support continuity through the handover.
Protect confidential information
Not every enquiry will be genuine. The SBDC warns that competitors, suppliers, employees or clients may make enquiries just to find out who is selling. Ask every potential buyer to sign a confidentiality agreement before they see your information pack. You can also advertise without naming the business.
An information pack generally includes a description of the business, a customer profile and industry benchmarks. It may also list assets, staff skills, key contracts and lease details. Audited financial statements, an offer and acceptance form and a contract of sale complete the pack. Preparing this early saves time once serious buyers appear.
Plan for tax on the sale
Selling a business can raise capital gains tax questions. The Australian Taxation Office lists four small business CGT concessions. These are the small business 15-year exemption, the 50% active asset reduction, the retirement exemption and the roll-over. Eligibility conditions apply, and your accountant can check which, if any, you may qualify for.
Tax planning works best well before the sale. The structure of the deal and its timing can both make a difference. Get advice before you sign anything rather than after. The ATO also suggests seeking professional advice if its information does not fully cover your circumstances.
Broker or private sale?
A business broker can prepare documents, promote the sale, screen buyers and help negotiate. Business Queensland notes that brokers usually charge for marketing and take a percentage of the sale price as commission. In Western Australia, only a broker licensed under the Real Estate and Business Agents Act 1978 can act as your agent. Check the rules in your own state.
Selling privately saves the commission but takes more work. Business Queensland warns it can be time consuming and stressful. You would need to market the business, prepare documents, arrange a valuation and check each buyer can pay. Decide early which path suits your time and skills.
Frequently asked questions
How far ahead should I start preparing to sell?
The government guidance does not set a fixed timeframe. Both Business Queensland and the SBDC suggest starting well before you advertise the business. Starting early gives you time to lift profit, tidy records and fix problems.
How many years of financial records will a buyer want?
The SBDC recommends audited financial statements for at least the previous three financial years. Business Queensland also suggests collating at least three years of financials if you sell yourself. Keep them organised and ready to share once a confidentiality agreement is signed.
Can I sell my customer database with the business?
Possibly, but it depends on the database. Business Queensland notes that selling a customer or membership database is subject to its terms and privacy obligations. Check this with your lawyer before you list the database as an asset.
Do I need a broker to sell my business?
No, you can sell privately. A broker can take on marketing, buyer screening and negotiation for a fee. In Western Australia, only a licensed business broker can act as your agent.
This article is general information only and is not legal, tax or financial advice. Laws and processes differ between states and change over time, so speak with a qualified lawyer and accountant about your situation.