Items to Review before you Sell

Before deciding to market your business for sale, there are few items that you review so you know where you stand. These include-

Tax implications- The proceeds from a business sale could be subject to a number of different taxes on exit. It is important that you share your plans for sale with your accountant and seek advise as to what taxes you may need to pay when the business is sold.

One tax that sellers and buyers won’t need to worry about if they are selling an existing business is GST. Currently businesses attract no GST if they are sold as a going concern.

However other taxes including Capital gains tax could apply depending on your circumstances so find out where you stand before you exit.

Staff Leave and Entitlements- The standard conditions of sale state that on settlement a seller needs to allow 70% of all employee’s accrued sick leave and annual leave. Employees with over 5 years of service will also have any provisions for long service leave transferred to the incoming buyer.

This can be a big bill that some sellers don’t expect. There have been some sales that I have been involved in where the seller needs to pay in excess of $100,000 which ultimately comes off the sale price to cover all the entitlements that the staff have built up.

Asset Payouts- Most businesses have some assets on lease. Most commonly this might include motor vehicles, phone systems or photocopiers. Any assets that are leased by the business need to be paid out by the seller so the buyer takes over with no encumbrances over the assets.

The exception to his rule is if an asset is hired. A buyer can chose to continue to hire that piece of equipment if they wish. A forklift is common asset that many businesses might choose to hire instead of buying outright.

Finding out payout figures before you sell will save any nasty surprises come settlement

Stock- Any stock that is being transferred with the business need to be current and saleable. This means that any old stock or products that are out of date needs to be cleared out.

If there is excess stock, or older products that are still being held in the business, a buyer has the right to reject buying that stock and leaving it with the seller to write off.

There is usually a stocktake done on the day prior to settlement so they buyer knows exactly what they are buying as part of the sale.

Debtor and Creditors- Buyers don’t want to buy a business where customers are slow to pay and they are spending unnecessary time worrying about money coming in. By demonstrating that you have a customer base that pays its bill, it will give the buyer comfort that they will be paid for their work.

It is also the sellers responsibility to collect any money owed to you after the sale is completed and you usually have a better chance of getting this money while you are still the owner of the business. Putting some extra effort to keep debtors to a minimum could pay big dividends.