For whatever reason, you’ve had enough and it’s time to move on and you want to sell your business. How can Rider Accountants & Advisors help you with the business sale process?
You Need an Accountant for Preliminary Valuation
How much is your business worth? No, there aren’t any magic calculators out there to plug and play with (and if there are, we don’t recommend using them!). If you’re considering a sale, you may already have a number (or a range) in mind. Until you solicit input from an accounting professional, however, your idea is just that—an idea.
Accountants support sellers by providing objective valuations. Acting as a financial advisor, an accountant will help you ascertain your material assets and liabilities: what you own, what you owe, and what will be included in the sale.
Perhaps more importantly, an accountant can generate a picture of your income over time and assign concrete value to the more fluid and variable aspects of your business: past earnings, cash flow, balance sheets, equity statements, and the company’s performance related to economic and market conditions at large, as well as any liabilities that may be lurking under the surface.
Decide what’s for sale
Make sure you agree on exactly what to include in the sale of your business. Establishing what exactly is for sale will help you value your business. Ask yourself:
- Do you want to sell the business outright including all the assets?
- Which assets don’t you want to sell?
- Do you want to sell your registered business name?
- Are you looking to sell the business’ intellectual property (IP)?
- Do you want to include any property the business might own?
Determine the “listed” value of your business
Do you know how much your business is worth? Even if you have a set figure in your mind, is it realistic? There are many ways to determine the value of a business. You only have to search Google to find various valuation calculators and methods. But, do they apply to you, and is it an accurate assessment of the actual value?
There is only one way to determine the true value of your business, and that is with an accountant. Our CPAs will assess all aspects of your business based on past performance to give you a good idea of its actual value through a detailed evaluation report. A business evaluation report is a compilation of either profits, turnover, and assets, or all or a combination of each.
Find buyers for your business
You can advertise the sale of your business to potential buyers through different methods, which include
- business brokers or real estate agents
- digital and traditional media
- your existing networks (e.g. family, friends, or employees)
- word of mouth
- current or former customers of your business
The way you advertise will depend on your business type, industry, and contacts.
Check whether there are any requirements in your state or territory about what information you need to give potential buyers
A CPA Can Help You Organise and Structure the Deal
Each M&A transaction is different. A “sale” could, for instance, refer to a merger between two similar companies, the takeover of one company by a large conglomerate, or the formation of a new enterprise or shell company. You might be selling your company’s assets such as intellectual property and equipment, majority stock ownership, equity, or a combination thereof.
Your financial advisor’s job is to figure out what kind of deal structure will net you the highest asking price with the fewest complications. In this context, an accountant acts as a translator, taking the language barrier out of the sometimes-arcane world of finance and breaking down the pros and cons of various options.
Without an accounting partner on your team, you will have to become fluent in these matters by yourself. And if you lack financial fluency, you’ll not only have a difficult time at the negotiating table, but you may not understand what you’re on the hook for when the deal is done: your transaction might obligate you to remain involved with the business until certain conditions are met, or you might only receive a portion of the purchase price at closing. Unless—and even if—you know your way around liquidity ratios, escrow, earnouts, and so on, you need a financial advisor.
Ensure the best sale structure
When you sell a business, you need to sell it as a stock sale or an asset sale. Either, you are selling it with stock alone, or you’re selling it with all company assets (intellectual property and equipment). There are pros and cons of selling your business either way, and the tax implication between each can be considerable.
Our CPAs can help by assessing each option to determine which method is best for you and your financial situation. Our advice can lead to substantial tax savings. We will advise on the most tax-efficient option to finalise the deal.
Prepare financial documentation
For potential buyers to be comfortable with the procurement of your business, they will want to see detailed financial statements. Our CPAs can prepare all necessary reports to ensure peace of mind for the buyer. This service may also involve recasting the statements to remove items that are unrelated to the ongoing business.
Prepare the contract
Often, an intermediary (e.g. a lawyer) will draw up the sale contract for you.
Check your state or territory to find out if there are any special requirements you need to follow when preparing your contract.
You can also have a solicitor check the contract for you. The solicitor can confirm that the contract doesn’t include any false statements, and covers all aspects of the sale, including:
- all the relevant assets that are being transferred, including property, equipment, fixtures, fittings, stock, and any rights to use any names
- all the relevant liabilities, including creditors (people or businesses that your business owes money to) and the lease of the business premises
- responsibility for employees and employee entitlements, including whether employees are to be transferred with the sale
- statements about what will happen if any issues arise (for example, the buyer decides not to proceed, mistakes are discovered in the contract, etc)
There are some contract clauses that will restrict you from trading in your profession after the sale of your business. These clauses are often to prevent you from competing directly against your sold business. Make sure you’re aware of all the terms and conditions of the contract before deciding to sell.
Take care of your employees
It’s important to communicate with your employees and let them know whether they’ll be transferring across to the new owner or ending their employment due to the sale of the business. In both cases, a transfer of business ends an employee’s position with you. You must give your employees notice of ending their employment with you or provide payment in lieu of notice.
When employees transfer with the business, you need to give all relevant employee information to the new owner. There are some employee entitlements that the new owner must recognise and others that the new owner doesn’t have to recognise.
Finalise your tax and legal issues
Consider whether Capital Gains Tax (CGT) and Goods & Services Tax (GST) apply to the sale of your business. For example, if your business is registered for GST, you may need to include GST in the price of your individual business assets- external site or repay GST credits- external site.
If you’re selling a small business, CGT concessions- external site may be available.
If you consider carefully what tax obligations will arise from the sale of your business you can also plan to meet them and avoid being in a debt situation. If you do find that you cannot pay your taxes on time, you may be able to get help through an ATO payment plan- external site.
Find out more about things to consider when changing, selling or closing your business- external site from a tax perspective on the ATO website.
Consider any insurance requirements for your business, such as run-off cover (where you are insured for any legal claims that are made after you sell your business).
Transfer your business to the new owner
Once your business is sold, you need to transfer your business to the new owner. You need to:
- transfer leases, licenses and permits
- finalise tax returns, activity statements and instalment notices
- cancel your ABN and transfer or cancel your business name
You’re still responsible for any lease agreements and obligations that are part of your business until they are transferred to the new owner. License transfers can take up to 12 months, so it’s important to plan for this early in the process.