Alexander and Associates
Solicitors
Suite 12, Level 10
“Leura” Building
809 Pacific Highway
CHATSWOOD NSW 2067

Tel: (02) 9413.2600

Fax: (02) 9419.8872

On-site parking via Brown Street car park entrance.

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Sale Of A Business

Are you looking to sell your business? To make sure you get a good return on the sale, there are a number of issues you should consider.

As with any large transaction, there are many things that can go wrong in the sale of a business. A smooth transaction – and one that is financially beneficial to you – take some planning.

Why sell?

There are many reasons why people decide to sell a business. Sometimes businesses are sold because of the death or illness or an owner. Sometimes owners become bored with the business, or disagree with other owners. Sometimes the business has reached a peak in sales or profitability and the owners do not have the capital, or the inclination, to grow the business further. And sometimes the owner decides it is just time to retire.

Whatever the reason, the decision to sell your business is not one you should make on a whim. Be clear about the reasons why you want to sell your business. It is important that you are aware of all the options available to you. If your business is not performing well, this may make it difficult to sell.

What Are You Selling?

Generally, when you sell a business, you are transferring the ownership of the business' assets and property rights. You may also be selling liabilities and debts of the business.

If you operate your business as a company, this may involve selling controlling portions of shares in the company.

There are a number of component parts to a business that are commonly transferred to a buyer when the business is sold. These include:

• Business name and goodwill

• other intellectual property rights (see below)

• premises (ownership or lease agreements)

• plant and equipment

• fixtures and fittings

• existing stock

• current orders

• licences

• supply agreements

Ensure that you hold proper title for each asset and check if there are any encumbrances that you will be required to pay out.

Preparing For Sale

To get a good return on the sale of your business, you will need to make the business attractive to potential buyers. So, put yourself in shoes of a buyer – ask yourself what a buyer would want to know about the business.

Most buyers want to know that the business is profitable and running smoothly. It is crucial that your financial records – including balance sheets, profit and loss statements and Business Activity Statements – are clear and up-to-date.

Ensure all documents– such as leases, agreements with suppliers, and employment contracts with staff – are in order.

Prepare detailed information about the business. Explain when the business was established, how it has developed and future opportunities. Give details about the day-to-day running of the business. Explain the role of employees, contractors and suppliers. Provide details of insurance and other costs. Also provide information on industry trends and how the business compares with its competitors.

You may want potential buyers to enter a confidentiality agreement. This means any confidential business information the buyer comes across cannot be divulged to anyone else. This is a good idea if you are worried about competitors pretending to be potential buyers to gain access to business secrets.

Valuing Your Business

How do you place a value on your business? Your business' value will comes from its assets (minus its liabilities), but should also take into account issues such as goodwill, market position and business potential.

You will need to itemise and value all assets and rights to be transferred as part of the sale.

It is important to thoroughly document the value of the business. All business records should be in order and you should be prepared to allow potential buyers to peruse documents relating to the business.

Intellectual Property

Before selling the business, you should identify all the intellectual property rights you own and ensure you have adequate legal protection. Intellectual property includes:

• business name, logo and trademarks

• confidential commercial information

• patents

• designs – including packaging

• customer lists

• employee knowledge

Intellectual property can give your business a competitive edge. It is thus an important selling point when you a pitching your business to potential buyers.

Some forms of intellectual property – such as copyright – are automatically protected by the law. But others – such as trademarks and patents – must be registered to ensure you have legal ownership of that right. Legal protection gives you the exclusive right to commercially exploit the intellectual property over a fixed period of time. You can also derive further income by licensing rights to use the property.

Get legal advice to ensure your intellectual property is adequately protected.

Employees

Employees are a valuable part of the business and should be consulted when preparing to transfer ownership of the business.

You must also check you have fulfilled all your statutory or award obligations to employees, such as holiday pay, sick pay and long service leave.

Timing

As with most things in life, timing is important when selling a business. Taxation implications may be a deciding factor in planning the sale of a business and you should obtain advice on how the sale will affect income tax, capital gains tax and GST.

Also consider what you will do once you have sold the business. A buyer may want you to agree to a restrictive covenant to prevent you setting up another business in competition with them.

It may also be attractive to buyers if you are willing to work for the business as an employee after the sale – this can help smooth the transition period.

Conclusion

Deciding to sell your business is a big decision. And it can often be an emotive one – it can seem like you are offering your years of hard work for sale! But it is crucial that you plan carefully and get quality legal advice, to ensure a smooth transaction. We have the skills and experience to help you avoid the pitfalls and maximise your return on sale.

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