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Business Appraisal

Business Appraisal · Folios

Folio 5 · Sale

Getting a business ready to sell

Getting a business ready to sell starts with its records: financial statements for the last 5 years if possible, the legal papers, and the details of staff, suppliers and customers. business.gov.au notes that buyers may want to value the business themselves, so it helps to have documents organised and up to date first.

General information, not financial, tax or legal advice. This page explains how valuation works; it does not value any business. For your own situation, check the ATO, business.gov.au or ASIC Moneysmart, and ask a qualified adviser.

A register of records, with the licences line enlarged A ledger page listing records to prepare: financial statements for the last 5 years if possible, licences and permits, which can take up to 12 months to transfer, and up-to-date employee records. A brass bar magnifier lies along the licences line and enlarges it. RECORDNOTE05Financial statementslast 5 years if possibleLicences and permitsup to 12 monthsEmployee recordsup to date RECORDNOTE05Financial statementslast 5 years if possibleLicences and permitsup to 12 monthsEmployee recordsup to date
Licence transfers can take up to 12 months, so business.gov.au suggests planning for them early.

iThe register

A register of what to have ready

business.gov.au groups the information needed to value a business like this.

From business.gov.au’s list of information needed to value a business.
GroupWhat to gather
FinancesFinancial statements, for the last 5 years if possible: cash flow statements, debts, annual turnover, profit and loss statements.
Physical assetsMachinery, buildings, equipment and stock.
Other assetsGoodwill and intellectual property.
Legal documentsLeases and insurance policies.
RegistrationsBusiness name certificates, ABN registration papers, licences, permits and anything else showing you meet government requirements.
Business profileCompetitors, sales reports and forecasts, business history, documented procedures, business plans, opening hours, and whether premises are owned or leased.
StaffJob descriptions, skills and experience, work history, performance reviews and pay rates.
Suppliers and customersSupply agreements and prices; customer numbers, profiles and direct marketing activity.

Much of that is personal information about other people. business.gov.au reminds sellers to comply with the Australian Privacy Principles when disclosing employee, customer or supplier details to potential buyers.

iiThe other side

What a buyer is told to check

business.gov.au’s advice to buyers is a useful mirror for sellers. It tells them to review financial records, operations and legal documents, and to collect and check the financial information themselves, covering the past three to five years:

  • tax returns and business activity statements
  • accounts receivable and payable, balance sheets, profit and loss records and cash flow statements
  • sales records
  • whether licences and permits are correct and current
  • whether the landlord will agree to transfer the lease
  • the state of plant, equipment and inventory
  • outstanding debts, refunds and warranties, and any debts on assets registered on the Personal Property Securities Register

iiiStaff

Staff, and what is owed to them

Under the Fair Work Act 2009, a seller must give employees written notice that their employment is ending, or payment instead of notice, including employees who will transfer to the new owner. If the transfer happens before the notice period ends, the seller still pays the rest of the notice period.

For transferring staff, business.gov.au says to give the new owner up-to-date employee records, tell them about contractual, leave, financial and legal obligations, and agree which obligations pass across. The new owner must recognise some entitlements but not others; any they do not recognise, the seller pays. The award or enterprise agreement may add rules, such as consulting staff.

ivIn order

From agreement to handover

  1. Negotiate on accurate information

    What you say about the business must be accurate and true; misleading or deceptive behaviour is not allowed. The two sides agree the price, the deposit (business.gov.au says usually 10% of the sale price), settlement, any handover training and arrangements for staff.

  2. Put it in a contract

    A business sale agreement is legally binding. It sets the price, payment method, handover date, the assets included, conditions, and any restraint clauses such as confidentiality or non-compete terms.

  3. Work out the tax

    Capital gains tax and GST may apply to a sale, and small business CGT concessions may be available. When a business is sold as a going concern and the ATO’s conditions are met, the sale attracts no GST. The ATO explains the conditions.

  4. Transfer what the business runs on

    Leases, licences and permits are transferred; tax returns, business activity statements and instalment notices are finalised; the ABN is cancelled; and the business name is transferred or cancelled. Until the transfer happens, the seller stays responsible for lease obligations.

  5. Pass on the business name

    ASIC’s process starts with the current holder, who receives a transfer number to give the new owner. Once the transfer is submitted, ASIC cancels the old registration within 28 days. The new owner has 4 months and 28 days, counted from the transfer application, to use the number.

  6. Keep the records

    Records of sales, including the sale of the business and its assets, are kept for five years from when they were prepared or obtained, or the transaction was completed, whichever is later.