Selling a business – what you need to consider

In this two-part article series, we highlight what to look for when buying a business and what to consider when selling a business. No matter which stage of the business ownership lifecycle you’re at, having an understanding of both ends will give you competence and confidence. Understanding the legal issues you could encounter and the value exchange will help you get the most out of your asset.

Selling a business is an exciting time where you potentially reap great rewards from hard work. However, it’s a process that requires preparation and planning to execute well. Through preparation, you maximise the value of your business when your business is in order. You’ll attract more buyers, a higher sale price and a fast sale. In part two of this series, we’ll cover what’s involved in exiting a business, the steps you need to take and how to hire the right business lawyer.

What is involved in selling a business – why should you hire a business lawyer?

Understanding what’s involved in selling a business minimises your risk and protects the investment you’ve made building your business. Selling a business requires preparation and planning. A lawyer can provide legal advice, review your documentation and guide you through the sale of your business. Here are the steps you can expect to take when selling your business:

1. Value your business

Selling your business first involves valuing it. There are various ways to do this, including analysing your market, calculating your business’s net worth (assets minus liabilities) and using return on investment (ROI).

2. Find buyers

You’ll then need to find buyers interested in your business. Advertising the sale of your business can be done through business brokers or real estate agents, word of mouth or your network. You can also use digital marketing or traditional media such as newspapers.

3. Negotiate the sale of your business

Once you’ve found a buyer, you need to agree on the sale price, deposit amount, settlement period, handover and arrangements for existing staff. Negotiation is an important step. All information provided about your business must be entirely accurate to minimise the risk of any claim of misrepresentation or breach of warranty by the buyer.

4. Prepare the documentation

As the seller, you will be required to provide the following documentation to the buyer:

• The contract of sale;
• A copy of any lease to be transferred;
• In Victoria, a vendor’s statement or Section 52 statement (if the sale price is less than $450,000).

5. Look after your employees

Communicate with your employees about how the sale will affect them and whether they will be given employment by the buyer.  It is also important to comply with your obligations in relation to notice periods and payment of employees entitlements.

6. Finalise tax and legal issues

Capital Gains Tax (CGT) and Goods & Services Tax (GST) might apply to the sale of your business. If you’re selling a small business, CGT concessions may be available.

7. Transfer your business

Transfer leases, business name, licenses, permits and any agreements needed to operate the business, finalise tax returns, activity statements and instalment notices and cancel your ABN.

Steps to take before selling your business

It is said that the day you buy a business is the day you should start preparing it for sale. Depending on how prepared you are will determine how much groundwork you have to do in preparing to sell your business.

Establish systems and processes for as much of your business as possible. Capturing business knowledge reduces reliance on staff and makes your business more sellable, increasing the sale value. As the owner, you should also be independent of your business. Your business shouldn’t rely on you to operate successfully.

Before you enter into negotiations for the sale of your business, you should obtain financial and tax advice on how selling your business will affect you financially and whether you can take steps to reduce the tax paid upon the sale of your business.

How to find the right business lawyer near you

To find the right lawyer for your business sale, ask questions when you first contact a lawyer. Questions will help you feel confident in their knowledge and experience in buying and selling businesses, including businesses in your industry. By having an idea of the sale process and the steps you need to take in preparation, you’re well-prepared to find the right lawyer to sell your business.

How we can help

Our Corporate & Commercial Lawyers can assist you to prepare for the sale or your business or manage the risks of acquiring a new business when an opportunity presents itself.  We are able to guide you through the process of buying or selling a business, step by step, assisting you from the early stages of negotiation to the settlement and finalisation of the sale. We aim to streamline the transaction so you can get down to business sooner.