A time will come for most business owners when they will decide they want to sell their business. The reasons for selling can be varied – getting close to retirement age, needing a new challenge, or succession planning.
There is a lot to consider when contemplating selling your business. The more planning you do the more chance you have of maximising the sale price. Following are some things to consider well in advance of putting your business on the market.
Who will purchase my business?
You are likely to be selling your business to one of the following – a competitor, a key employee or a family member.
Each prospective purchaser will have different motivations for buying the business so different things will be important to them. Different motivations may include profits, business synergies, lifestyle choices, or maintaining the business in the family. Therefore it is important to understand the psychology of the prospective purchaser.
In addition, the time frame for the sale of the business can be drastically different depending on the purchaser. A sale to a key employee or a family member may occur over several years whereas a sale to a competitor is likely to be much quicker.
When do you want to sell your business?
You want to give yourself plenty of time to prepare your business for sale. Ideally there will be a few years between thinking about selling your business and putting it on the market. The more time you have to prepare your business for sale, the more chance there will be of achieving a higher sale price.
How can I maximise the sale price?
The sale price for your business is generally calculated as a multiple of your net profit.
Increasing the profitability of your business will help boost the sale price. If you want to improve the performance of the business, you may want to consult your accountant or business advisor and implement a profit improvement plan.
The sale price for your business is determined by several factors such as financial history, financial forecasts, brand and processes. The more significant these are, the higher the sale price.
You may want to consider obtaining a current valuation of your business. Does the valuation align with your expectations? The valuation will identify the drivers of your business and areas that can potentially be improved to increase the sale price. Your accountant or business advisor will be able to assist you in obtaining a business valuation.
Is my business reliant on me?
The more the business is reliant on the owner, the less attractive it is to prospective purchasers and the less likelihood there will be of maximising the sale price. This is known as ‘key man risk’ and is typically a problem in small businesses.
If you are thinking about selling your business, put a plan in place to reduce ‘key man risk’, for you will need to be able to transfer your knowledge and skills so the business is not at risk when you sell.
What can I do to minimise tax on the sale?
Capital gains tax concessions are available for small business owners. These concessions are the 15-year exemption, 50% active asset reduction, retirement exemption and rollover concession.
It is important to review your eligibility for these concessions as soon as you are thinking about selling your business. Eligibility for the concessions can have a significant influence on tax to be paid and ultimately the net proceeds you receive from the sale of your business.
Selling your business is likely to be a key milestone in your life and will hopefully set you up for a better financial future. If you are thinking about selling your business, contact your Accru advisor who will be able to assist in preparing and implementing a plan to sell your business.
