Selling a Business? 10 Steps To Get a Business Ready for Sale

10 Actionable Steps to Ease The Selling Process

1. Ensure That Selling Is the Best Choice

If you haven't already, ask yourself the following question: "What is the true reason behind wanting to sell this business?" By establishing the true reason for wanting to advertise your business for sale, you get to make sure this is the right choice for you. Furthermore, the question of why your business is for sale is one of the first questions potential buyers will ask. 

Oftentimes, business owners want to sell their business due to being burnt out or stressed out and, this can make it hard to attract qualified buyers. Along with your primary reason for wanting to sell, think about whether the current state of your business will attract potential buyers, considering your timing and state of readiness. So, how do you know if your business is ready to sell? Let's find out. 

What Makes Your Business a Valuable Opportunity?

Essentially, your business would be an attractive opportunity for prospective buyers when it offers a strong value proposition. This could include:

• A proven track record of profitability
• A loyal customer base
• You're a well-established brand
• Growth potential (increasing profits)
• A major contract spanning a few years. 

Additionally, having unique assets such as intellectual property, strong supplier relationships, or a prime location can significantly enhance your business’s appeal. If your business is well-structured, with efficient processes and a skilled team in place, it further increases its desirability to prospective buyers.

Is it the Right Time?

As you've made the decision to sell, start thinking about the timing of the sale to ensure a smooth transition for both you and the buyer. As timing is everything, it's important to prepare for the business sale as early as possible (we recommend a year or two ahead of time).

The preparation and timing of this includes having time to improve your financial records, customer base, and business structure to make your business more profitable, and, effectively, a transaction more attractive. 

Furthermore, you will want to consider the impact of timing of the sale for capital gains tax purposes, eligibility for Small Business Entity Capital Gains Tax Concessions and  other tax liabilities which may arise in the current and future tax years. 

2. Leverage Professional Advice

Business sales involve legal and financial strategies and factors, among others, which buyers and sellers need to fulfill. For this reason, you may have to look for credible experts in the field for help in the process. Professional accountants and lawyers can offer their knowledge and advice and can guide you away from problems you may encounter.

At Synergy, our accounting team can help you get your financial records in order, ensuring they accurately reflect the health of your business as well as helping you to review your internal structures and ensure that you make yourself redundant from the business,  which is essential for attracting ideal buyers. 

Are you preparing to sell your business and get the highest possible return? Work with us: learn from our team of specialists and let us lead you through the process.

Get In Touch

3. Establish What's for Sale

Before you list your business for sale, determine exactly what will be included in the sale (this will help you accurately value your business). Here are some key considerations:

Tangible Assets

Tangible assets are physical assets with a clear monetary value. These might include property, equipment, and accounts receivable. When deciding which tangible assets to include in the sale, consider the following:

• Business Premises: If you own the building where your business operates (freehold), decide whether it will be part of the business sale or if you will retain ownership and lease it to the new owner.
• Equipment and Inventory:identify any equipment or inventory which you may wish to exclude from the sale and ensure that all equipment essential to the business operation is in good working order to make for an easy transition for a potential buyer. 
• Debtors and Accounts Receivable: Determine the outstanding balance, if any, which is due to your business and if these are receivables that will be passed on to the new owner.
• Rental Bonds: Consider any rental bonds on the business premises and whether they will be paid out or transferred to the buyer.

Intangible Assets

Intangible assets are non-physical but can significantly enhance the value of your business. These assets include intellectual property (IP), brand recognition, goodwill, and customer databases. When deciding which intangible assets to include, ask yourself:

• Intellectual Property: Would you sell your business’s patents, trademarks or/and copyrights? Just note that selling these assets means that you will not be able to provide service using the exact IP again.
• Customer Database: Is it legal to transfer the database containing the list of customers or members? Also, make sure you look at the terms and conditions and other issues related to privacy.
• Goodwill and Brand Value: Consider the value of your brand and the goodwill you've built. These can be significant factors in determining your asking price.
• Contracts: Do you have any contracts with remaining terms that represent monetary value? 

4. Valuing Your Business

Valuing your business is an important step when selling, as you'll need to work out its worth to ensure a fair and competitive price. If you use financial professionals, they can help you decide which valuation method is best for your business. There are various ways to value your business; however, here are three common methods to do so:

1. Market Analysis

Analyse the market by comparing your business to similar ones currently for sale or recently sold. While this method doesn't provide a formal valuation, it offers a realistic guide to your potential market price. By looking at businesses in your industry with similar size, revenue, and growth potential, you can gauge what buyers are willing to pay. 

2. Net Worth Calculation

Another method is calculating your business’s net worth. This involves assessing the difference between what your business owns (assets) and what it owes (liabilities). You'll need to consider tangible assets, such as property, machinery, and inventory, are straightforward to value. However, don't overlook the importance of intangible assets like goodwill, brand recognition, and IP. 

3. Return on Investment (ROI)

A more financially focused method is to use ROI to value your business. This approach calculates the value based on your business’s net profit. Potential buyers often look at how much profit they can expect from their investment, making this a key consideration in setting your asking price. Demonstrating strong, consistent profits and a solid ROI can justify a higher valuation and attract serious buyers.

We have worked with many small business owners over the years and helped them to prepare their businesses for sale.  We always encourage the business owners to deep dive into the structure/policies and processes to ensure that they have simplified and documented the systems which makes their business successful and therefore most valuable. We believe that one of the key elements of realising maximum value in a business sale is to ensure that the business is not reliant on the owner. We have found time and time again that putting in place the systems to start making the owner redundant from the business will lead to a greater return or they may even decide to keep it. 

5. Find Potential Buyers

There are various routes you can take to advertise your business to buyers, which include:

• Use Professionals: Business brokers can connect you with qualified buyers and handle the negotiation process.
• Advertise Widely: Use both digital platforms and traditional media to reach a broad audience. Tailor your strategy to your industry.
• Leverage Networks: Inform family, friends, employees, and customers that your business is for sale to generate interest through word of mouth.
• Qualify Buyers: Pre-qualify potential buyers for financing before sharing sensitive information.
• Negotiate and Protect: Keep a few buyers in the pipeline, stand firm on your price, and ensure all agreements are in writing. Use nondisclosure agreements to protect your business information.

6. Negotiation Process

The negotiation process of selling your business involves an agreement that has to be reached by both you and the buyer. To avoid any future claims of misleading or deceptive behaviour, do your best to only provide accurate information. Here are a few things you can focus on when negotiating: 

• Agree on the Sale Price: As outlined in the steps above, determine a fair price that reflects the value of your business.
  
• Set the Deposit Amount: Typically, the deposit is around 10% of the sale price. This shows the buyer’s commitment and secures the deal.
  
• Decide on the Settlement Period: This is the time between signing the sale agreement and completing the transfer. Agree on a timeline that works for both parties.
  
• Handover Training: If needed, offer training to help the buyer take over smoothly. Agree on the duration and scope of this support.
• Staff Arrangements: Discuss and finalise the future of existing staff, ensuring a smooth transition and maintaining business continuity.

DID YOU KNOW

Normally, a business broker will charge about 10% for businesses under $1 million. Even though this may seem like a hefty price to pay, keep in mind that a broker may be able to negotiate a better deal than you can on your own (based on contacts, skill, and training)

7. Preparing the Contract of Sale

This contract's purpose is to outline the terms and conditions of your business sale. Oftentimes, an intermediary will draw up this contract for you; however, going through the following points is important to ensure your contract covers all the necessary details and complies with any state-specific requirements. Here’s what to consider:

• Include All Relevant Assets and Liabilities: The contract should list all transferred assets, such as property, equipment, stock, and intellectual property. It should also specify any liabilities, including creditors and lease agreements.
  
  
• Employee Arrangements: Ensure the contract addresses what will happen to existing employees, including whether they will be transferred with the sale and how their entitlements will be handled.
  
  
• Contingency Clauses: These clauses help protect both parties by including statements about what will happen if issues arise, such as the buyer withdrawing or mistakes being found in the contract.
  
  
• Non-Compete Clauses: Be aware of any clauses restricting you from trading in your profession after the sale. These are often included to prevent you from competing directly with your sold business.
  
  
• Legal Review: Have a solicitor review the contract to ensure it’s accurate and legally sound. They can confirm that the contract contains no false statements and covers all aspects of the sale.
  
  

8. Current Employee Contracts & Communication

Understandably, a change like transferring business ownership can be stressful for employees, which is why we can't emphasise enough that communication is key. Here are a few tips to manage this challenging process effectively:

• Communicate Early: Let your employees know (as early as possible) whether they’ll transfer to the new owner or if their employment will end due to the sale.
  
• Provide Notice or Payment in Lieu: The successful sale of your business will result in their termination of employment with you, which is why you must give your employees proper notice or offer payment in lieu of notice, as this ensures compliance with employment laws while maintaining good relationships.
  
• Transfer of Employees: If employees are transferring with the business, you’ll need to provide the new owner with all relevant employee information. This includes details on contracts, entitlements, and employment history.
• Employee Entitlements: Some entitlements, such as accrued leave, must be recognised by the new owner, while others may not be. It’s important to clarify which entitlements will carry over and ensure everything is documented in the sale agreement.
  

9. Tax & Legal Considerations

When addressing tax and legal considerations, you will need to  determine if Capital Gains Tax (CGT) and Goods and Services Tax (GST) apply to the sale. If your business is GST-registered, you may need to include GST in the sale price of individual assets or repay GST credits. There are some very generous Small Business Entity Capital Gains Tax Concessions which would substantially reduce the tax liability on the sale, but it important to ensure that you meet all the relevant conditions prior to the sale contract date.Planning for these tax obligations will help prevent unexpected liabilities and manage them effectively to maximise your after tax business sale outcome.

You will also want to review any insurance requirements, such as run-off cover, which protects against legal claims made after the sale. This coverage protects you from potential issues arising once you no longer own the business. For more detailed guidance on tax and legal considerations, refer to the ATO website or contact your trusted advisers . 

10. Transfer the Business to the New Business Owner

After the sale of your business, follow these steps to ensure a smooth transfer to the new owner:

• Transfer Leases, Licenses, and Permits: Ensure that all business-related leases, licenses, and permits are officially transferred to the new owner. Some transfers, such as licenses, can take up to 12 months, so initiate these processes early.
  
• Finalise Tax Returns and Statements: Complete and submit any outstanding tax returns, activity statements, and instalment notices. This ensures that all tax obligations are settled and up to date.
  
• Cancel ABN and Business Name: Cancel your Australian Business Number (ABN) and either transfer or cancel your business name. This step is essential to prevent any future liabilities or confusion regarding the business’s identity.
  
  

FAQs

Can You Sell a Business Privately?

Yes, you can sell a business privately. This often involves finding a buyer through personal networks, business brokers, or direct marketing without listing the business publicly. Ensure confidentiality by using non-disclosure agreements and working with legal and financial advisors to handle the sale.

How to Sell a Business Idea

To sell a business idea, conduct thorough research and prepare a compelling presentation. Identify potential companies or investors who may be interested and approach them with your idea, ensuring that you protect your concept with a non-disclosure agreement or patent if necessary.