Selling a small business in Australia starts long before you find a buyer. Get your accountant and your lawyer involved early, be clear on exactly what you're selling, get your contracts, lease and employee arrangements in order, protect your information with a confidentiality agreement, and know your terms before you negotiate. Planning ahead is what protects your price, and avoids the problems that can derail a sale.
There are plenty of reasons to sell a business: a change of direction, lifestyle, or because you've built something valuable and you're ready to move on. Whatever your reason, selling can be stressful and full of uncertainty. It doesn't have to be.
I've acted for many clients buying and selling businesses, and I've seen what goes wrong time and time again. More often than not, it could have been avoided with planning and the right advice early on. Prevention really is better than cure.
1. Plan early, and bring your team together
Start planning well before you put the business on the market. It's not uncommon for a sale to take a year or more, so don't rush it.
Your first two calls should be to your accountant and your business lawyer:
Your accountant gets your financials in order (buyers commonly ask for three years' worth), helps you work out what the business is worth, and advises on the tax consequences of the sale, including any small business concessions.
Your business lawyer gets your contracts and legal documents in order, prepares the sale contract and acts for you through to settlement.
It helps when your advisers work together. I often have a call with a client's accountant to work through the issues and agree a game plan. Legal and accounting don't always see things the same way, but more often than not we land on a plan that's in your best interests.
2. Be clear on exactly what you're selling
Decide what's included in the sale:
Goodwill: the reputation and customer relationships of the business
Plant and equipment: what you own, and what's leased or financed
Stock
Intellectual property: your business name, trade marks, content and systems
Digital assets: your domain name, website, social media accounts and email lists
Contracts: key client, supplier and contractor agreements.
Check that you actually own what you're selling. I regularly see business owners who don't control their own domain name because it's still registered to their web designer.
You'll also need to decide, with your advisers, whether you're selling the business' assets or, if you trade through a company, the shares in the company. The structure affects tax, liabilities and what the buyer takes on.
3. Get your contracts and documents in order
Loose ends cause delays, increase costs and can reduce your price. Before you go to market:
Check your lease. If you have business premises, find out what the lease says about assigning it to a buyer. You'll usually need the landlord's consent, and a secure lease adds real value.
Review your key contracts. Check whether client, supplier and finance agreements can be transferred to a buyer, or end on a sale.
Paper your team properly. Make sure your employees have employment contracts and your contractors have contractor agreements.
Confirm IP ownership, including work created for you by contractors.
Update your policies and compliance procedures, and any licences or registrations the business needs.
4. Talk to your employees, at the right time
If your employees are important to the business, the buyer will want to know whether they'll stay. Find out, at the right point in the process, whether your team wants to stay on or move on.
In a sale of business assets, your employees' employment with you generally ends, and the buyer may offer them new employment. Your sale contract should deal with who is responsible for their accrued entitlements, such as annual and long service leave, and whether their service is recognised by the buyer. This is an area where getting advice early really matters.
5. Protect your information during due diligence
Serious buyers will want to look closely at your financials, contracts and operations. Before you share anything sensitive, have them sign a confidentiality agreement. Share information in stages, and be careful with customer and employee personal information, which is subject to your privacy obligations.
6. Know your terms before you negotiate
Know what you're prepared to accept on price and conditions, and why, before you start negotiating. Think about:
Price and payment: the deposit, and whether any of the price is deferred or depends on future performance (an earn-out)
Handover and training: how long you'll stay on to help the buyer settle in
Restraint of trade: buyers commonly ask that you don't compete with the business for a period, within a certain area. If you plan to start something new in the same industry, factor this in early. A restraint must be reasonable to be enforceable.
Warranties: the promises you make about the business, which you could be liable for if they turn out to be wrong.
What happens with the sale contract and settlement?
Once you've agreed terms and price, your lawyer finalises the sale contract. It should set out what's being sold, the price, conditions (such as the landlord's consent to the lease assignment), employee arrangements, the restraint, warranties and the settlement date.
Getting your lawyer involved early means the contract can be ready when you and your buyer are. At settlement, the price is adjusted for things like stock and employee entitlements, and the business changes hands. After that, you'll need to deal with registrations: the buyer uses their own ABN, and you'll need to cancel or transfer business names, licences and accounts. Ask your accountant whether the sale can be GST-free as the sale of a going concern.
What's different when selling an e-commerce business?
The same steps apply, with a few extras:
make sure you control your online store, domain name, payment gateway and social media accounts, so they can be transferred
check your supplier, fulfilment and platform agreements can move to the buyer
check your privacy policy allows customer data and email lists to be transferred as part of a sale
have your website terms, terms of sale and refund policy up to date, so the buyer isn't inheriting compliance problems.
You've worked hard to build your business, and you deserve the best possible price when it's time to sell. Plan, plan, plan: you won't regret it. If you're thinking about selling, book an introduction call and let's put a plan in place.
This article provides general information only and does not constitute legal, tax or financial advice. Your obligations depend on your specific circumstances.
Frequently asked questions
How long does it take to sell a small business?
It varies, and usually depends on how ready the seller is and how long it takes to find a buyer. Once terms are agreed with a buyer, the legal side of things can take anywhere from 6 weeks to 6 months. Starting early, with your financials and contracts in order, helps the process run more smoothly.
Do I need a lawyer to sell my business?
It's strongly recommended. A business lawyer prepares the sale contract, checks your lease and key contracts can be transferred, deals with employees and the restraint of trade, and protects you from warranties and liabilities after the sale.
What happens to my employees when I sell my business?
In a sale of business assets, their employment with you generally ends, and the buyer may offer them new employment. Your sale contract should deal with accrued entitlements, such as annual and long service leave, and whether the buyer recognises their service.
Can the buyer stop me from starting a new business?
Buyers commonly require a restraint of trade clause to be included in the contract, which stops you from competing with the business for a set period and area. It must be reasonable to be enforceable, so negotiate it with your plans in mind.
What's the difference between an asset sale and a share sale?
In an asset sale, the buyer buys the business' assets, such as goodwill, equipment and IP. In a share sale, the buyer buys the shares in the company that owns the business, including its liabilities. The right structure depends on tax and risk, so decide with your accountant and lawyer.
