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Business Sale, Pre-sale Planning, CGT, Due Diligence

Posted Wednesday 19th August 2015

Smooth selling...get the best value for your business

Maximising value upon sale

Business owners sell their businesses for a variety of reasons, both personal and strategic – you may be seeking a new challenge, looking to retire, or having issues with your current business partner. 

Whatever your motivation, selling a business can be complicated process. It is important to start the sales process off right by taking time for pre-sale planning.

Put your team together

Assemble your team of advisers.  They will advise you in all phases of the sales process, from pre-sale planning through to tidying up loose ends after the sale completes.  Your team should have an accountant, a business lawyer (business sales lawyer) and a good business sales broker.  It is well worth running your plans past your advisers before starting the sales process. 

Tax planning

In particular, consult with your accountant and business lawyer with regard to the possible capital gains tax (CGT) consequences of your business sale – particularly the availability of the small business CGT concessions and any applicable CGT rollover relief. 

This should be done as far ahead of sale as possible so that any available action can be taken to reduce your resulting liability before the business is taken to market.

Get out of the way!

A business that has strong policies and procedures in place and automates processes as much as possible is a much more attractive proposition for a buyer than one that relies heavily on the knowledge of the business owner.  

Document the basic functions of your business and the role of each employee in a manual.  Where your business relies on referrals, see if you can establish referral incentive agreements that are ongoing and don't require your ongoing input.

By doing so you make yourself redundant – and make it easy for the buyer to step into your role.  Businesses that are not reliant on the outgoing seller will attract higher valuations.

Critique your business

It is a good idea to undertake a pre-sale due diligence to determine if there are any legal, tax or accounting issues that may deter a potential buyer or result in you being unable to achieve the best price possible.

Your accountant can undertake accounting due diligence and your business sale lawyer can undertake legal due diligence.

For example, a legal due diligence carried out by your commercial lawyers might identify a potential vulnerability in the business due to there only being a “handshake” agreement in place with a key supplier to the business.  Knowing this prior to sale means that you can take steps to negotiate the necessary long term supply agreement before you advertise your business.

It is better for you to identify and correct such issues before going to market so that you don’t lose the sale during the buyer’s due diligence period or have the buyer seek a reduction in the purchase price.

Other matters that you can take care of include: 

  • Key contracts – convert unwritten agreements into written ones and resolve any outstanding payment issues.
  • Employee entitlements – ask your staff to take their leave and other entitlements prior to sale, otherwise the sale price may be reduced by the value of their entitlements.
  • Key employees - determine if any employees are important to the continuity of the business and consider whether they are likely to stay with the business after it sells.
  • Business premises – review business premises leases and ensure the lease does not expire or require renegotiation during the time when you plan to sell the business.
  • Intellectual property – ensure that all intellectual property and confidential material is protected and all registrations are up to date.
  • Inventory – sell all obsolete or slow moving stock items. This will improve both your sales figures and avoid disputes about stock value.
  • Plant and equipment – sell or dispose of obsolete plant and equipment.

Tidying up your financials

As part of the pre-sale process, you should have your accountant tidy up your business’s financial statements.   Audited financial statements will give the buyer a greater degree of confidence as to the true financial performance of the business.

Most business owners manage their business in such a way as to minimize taxes rather than maximize cash flow.  In such case, we suggest that you have your accountant prepare a new set of financials that show what the true cash flow capabilities of the company would be if certain “discretionary” expenditures are added back to the business.

Cleaning up your financial statements and learning how to present them to buyers are powerful tools to add value to your business.

Confidentiality/non-disclosure agreement

Before showing confidential information or trade secrets to a buyer, ensure that you have a confidentiality agreement ready to have them sign – particularly if there is any risk that a potential buyer may be able to use the information disclosed to compete with your business.

If you need more information or if you need assistance or advice on how to proceed please call us on 07 3339 7972.

Tags: Business Sale, Pre-sale Planning, CGT, Due Diligence

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