Featured in Seek Business | November 4th, 2015| Selling a business
For many small business and franchise owners, the business they have built and operated for the last x number of years forms a substantial element of the retirement funds pool. Before the champagne corks pop, however, there are many issues that need to be considered.
We asked Jason Bertalli, CPA, Director – Franchise & Business Services at BNR Partners to provide us with a rundown.
Jason Bertalli CPA
Firstly, consider if the business is “built” for sale
Over the years I have often been the bearer of bad news to business owners ready to pull the pin – “Your business is not ready to sell!”
The looks on people faces varies from insulted to upset to outright angry, but the facts don’t change. The business needs to be looked at from a purchasers viewpoint. Questions like: How will it run without the current owner?, Are there systems and procedures in place?, How reliable is the current income level? All must be considered.
I have even been told to allow for “under the table” cash sales adjustments! Put the systems in place for the business to run efficiently, have the records up-to-date, and ensure that the business is in a state to be handed over to new owners. There will be a due diligence, and it will all need to stack up.
Ask yourself – Is your price realistic?
My neighbour’s house is currently for sale. So I look at his house, consider all the better bits of my place (my grass is greener, my roof a nicer colour, etc. you get the drift) and then add my extra perceived value to his asking price. Taa-dah! I have an accurate value for my place.
Yes, that is unrealistic, but in reality, this is how most owners value their businesses. A potential buyer for your business will not (usually) apply the same level of emotional attachment to your business as you will. It will be judged on the cold hard facts of its prior and potential performance. Sales, gross margin and future pipeline are more important than the years of sweat you have poured in to get where you are. So consider the facts, and be honest with yourself.
Have you planned for tax?
Once you find a buyer, and it’s all getting exciting, don’t forget that the government will most likely want to share in your success. Will GST apply to the sale? Maybe not if you are selling all that is needed to carry on the business, and both parties are registered for GST, but you will need independent advice on this.
Will you be eligible for one of the capital gains tax relief measures in place for small business? There 4 main concessions:
- the 15 year exemption,
- 50% active asset reduction,
- the retirement exemption, and
- the rollover provisions.
Whether you are eligible for these depends on the scale of your business, your business structure, and many other intricate factors. This is something that your accountant should advise you on. Speaking of your accountant (disclaimer: we are accountants!) I implore you to work through these scenarios with your accountant before you entertain selling your business. There may be things you can do prior to maximise what your net receipt on the sale is. I am sure you would hate to find out too late.
And lastly – What will you do next?
The somewhat confronting question for the soon to be redundant entrepreneur is – so now what? Have you planned what you will do the day after tomorrow? Are you a 5 day a week golfer? Big into charity work? Just want to retire somewhere warm? Or even get into a new business venture? There are no wrong answers to this question, except if you don’t have one. A big part of your life plan needs to be what to do after the business sells. Don’t be one of the many who wake up with nothing to do. It is not as good as it may sound.
There are many other elements involved in preparing and processing your business sale, and dealing with all the related issues prior, during, and post-sale. Please get advice from experts along the way. The right advice will more than pay for itself, and getting it before you do anything is crucial.
And good luck!