Selling your business: Best practices

By understanding your business’ true value and navigating legal and tax obligations, a structured approach will ensure you achieve the best financial, emotional and professional outcomes.

Make the right decision

There are many potential reasons for selling a business:

• Poor health
• Financial difficulty
• Retirement/succession
• Relocation
• Pursuing other opportunities

It’s important to closely examine your motivations for selling and ensure that you have considered all your options. Selling a business can be a long, convoluted and occasionally expensive process that should not be undertaken lightly.

Succession planning

A succession plan is a critical business tool that will greatly assist in the business sale process.

Succession planning is often delayed by businesses until times of crisis, or until the owner is ready to sell. However, without a firm strategy in place, the handover process can be difficult and costly.

Having a strong succession plan in place prior to engaging in the sales process will ensure smooth transitions, minimal disruptions and maximum stability.

Type of sale

A business can be sold one of two ways, the first being a goodwill and asset sale where the intellectual property and any necessary inventory are sold to the purchaser. The second is where the entire entity is sold and the shares are acquired by the purchaser.

An entity which runs a business may include many assets and liabilities, not all of which you may wish to sell. This may include:

• Trademarks
• Intellectual property
• Client lists
• Goodwill
• Inventory
• Property
• Non business-related equipment and vehicles
• Debts and loans
• Licenses and permits

The assets that you include as part of the sale, and the assets that the purchaser wishes to buy, will have an impact on the nature and cost of the sale.

Valuation

A business valuation will determine how much your business is worth, so you can determine a reasonable sales price.

There are multiple methods of valuation, and the final sales price will often be a consideration of all factors.

• Market analysis – You can compare the sales price of similar businesses that have recently sold to gain an estimate of what your business may be worth in the market. This is not a formal valuation tool, but it allows you to develop a rough price expectation.
• Calculate the worth of assets and liabilities – Depending on what you have included in the business sale, you can determine the value of the assets owned by the business and the cost of liabilities owed. This will give an indication of the total worth of the business and inform a fair sale price.
• Return on investment – Taking into account net business profits and financial forecasting, you can use formulas to determine the likely return on investment of the business sale and settle on a fair price. Typically in Australia this will be based on a multiple of adjusted business profits

The process of business valuation can be mathematically complex and typically requires assistance from a financial professional to get the best result for both parties.

Ownership handover

Once a sale has been negotiated and agreed to, there are numerous compliance requirements to be completed as part of the handover process. This includes:

• Finalising tax, payment and debt obligations
• Due diligence
• Stakeholder notifications
• Transferral of lease agreements, assets, licenses and records
• Cancellation or transfer of registrations

Employee management

If your business has employees, it’s imperative that you effectively communicate and manage them through the sales process. Not only can the transition be a stressful for the employees, but there are also still obligations to them as part of the sale, and potentially post transaction.

Ensure that the employees are duly notified of the sales process and what it will mean for their employment. The purchaser may wish to continue their employment, or you may have to let your employees go because of the transition. We advise seeking specialised employee relations advice. Our friends at CCIWA have a team of of employee relations experts and lawyers who can help.

Whether transferring employees or letting them go, it is important to make sure that compliance is maintained regarding employee records, payment, superannuation guarantees, notice periods and entitlements.

Seek professional guidance

Selling your business can be complex, costly and stressful. If you’re looking to sell your business, Optima Partners’ team of experienced business advisory accountants can help. Contact us today for assistance with all your business sale needs.