Ultimate Sale of Business Checklist in Australia

Selling your business is one of the biggest decisions you’ll ever make as a business owner. And here’s the thing: a successful sale requires the right preparation, planning and guidance.

Today, we’ll provide a comprehensive guide to selling a business, including a checklist, legal requirements, negotiation strategies and more, so you can maximise the value of your sale and secure the best possible outcome.

Preparing to sell a business in Australia

You’ve decided to sell your business, so what’s next? First, preparation is key; rushing into the process can lead to issues and stress.

In Australia, the sale of a business takes in average around 6 to 9 months, and although it can be quicker, good organisation is crucial for a successful transaction. Here is how to start:

Financial preparation

Your financial records are the foundation of any business sale. Buyers will scrutinise these documents when negotiating with you; therefore, it is important to:

organise your financial statements, including having:
– up-to-date profit and loss accounts;
– balance sheets;
– cash flow statements for the latest period; and
– comparative data from previous years (three to five years);
ensure all tax returns are accurate and readily available;
provide a breakdown of your revenue streams and analyse your profit margins;
identify and quantify all business expenses, debts and liabilities;
document your outstanding receivables and evaluate your inventory; and
prepare financial forecasts and projections that show your business’s future earning potential.

Asset evaluation

Identifying your assets is next. Here, consider engaging an independent valuer to determine the fair market value of your business and all its assets. Other aspects to consider include:

compiling a detailed asset register listing all business assets, including:
– equipment;
– vehicles
– intellectual property; and
– inventory.
searching the Personal Properties Securities Register (PPSR) to ensure your business assets are free of securities or encumbrances. If any exist, consider having them released before settlement to avoid delays;
listing all your leases (both relating to real property and equipment) and obtaining lessor consent for their transfer; and
preparing to transfer any business licences required for operation.

Prepare essential documentation

Buyers need to understand the legal framework within which your business operates.

Compile your legal documents, including:
– business licences and permits;
– incorporation documents;
– contracts and leases;
– compliance records, and any litigation history.
Prepare operational documents such as:
– business plans;
– employee contracts;
– customer and supplier lists;employee contracts;
– operational manuals; and
– inventory records.

Valuing your business

Calculating the right price for your business will ensure a successful transaction that works for your interests. Here are some popular methods you can consider:

1. Return on investment (ROI) method:

This method values your business based on net profit and the buyer’s expected return (ROI).

For example:

Annual Profit = $200,000
Expected ROI = 20% (or 0.20)
Valuation = $200,000 ÷ 0.20 = $1,000,000

If your business generates $200,000 in annual profit and the buyer expects a 20% return within a specific timeframe, they might value your business at $1,000,000.

2. From scratch method:

Here, you estimate the business’s value based on how much it would cost to build a similar business from the ground up, factoring in things like equipment, inventory, marketing, staff and customer acquisition.

3. Asset valuation method:

This method calculates business value by subtracting liabilities from total assets. It’s ideal for asset-rich or stable businesses, but may undervalue those with strong earnings or valuable intangibles like brand or customer base.

4. Comparable sales method:

Here, you can use recent sales of similar businesses to estimate value. It’s useful when good data is available, but can be tricky if no close comparisons exist.
Read about “Simple Guide to Calculating Business Goodwill & Selling for the Right Price”

How to choose the right valuation method

The right choice depends on your business’s size, industry, asset base and earnings profile. You can consider:

Industry standards: asset-heavy businesses often use asset valuation; service or retail businesses usually rely on earnings-based methods.
Business type: stable businesses may suit ROI or future earnings methods, while start-ups might use entry cost valuation.
Market data: if recent sales data is available, comparable sales can help set a realistic price.
Negotiation factor: often, buyer and seller agree on a blended method.

Finally, getting professional advice from a valuer or broker can be invaluable for protecting your interests throughout the sale.

Creating a sales strategy

Now that the preparation is ready, let’s explore the strategy on how to sell a business.

1. Choose the right time to sell

Timing can impact your sale price and the speed of your transaction. Be mindful of:

a well-performing business in a strong market is more likely to attract serious buyers and better offers;
considering industry trends, current financial performance and your availability to manage the process; and
if the timing doesn’t align commercially or personally, it may be worth holding off or adjusting your strategy.

2. Set realistic goals

Understanding your objectives will help you make better decisions throughout the process. Set clear SMART goals and maintain a realistic view of your business to ensure it is in an attractive condition for buyers.

3. Identify and qualify potential buyers:

use multiple channels to find buyers, including:
– business brokers;
– digital platforms;
– professional networks; and
– word of mouth.
qualify potential buyers carefully before sharing sensitive information by assessing their financial capacity and industry experience with your business; and
consider using non-disclosure agreements to protect your business information while negotiating.

4. Marketing of the sale

advertise your business using tailored messaging and channels suited to your industry and target buyers; and
ensure your marketing materials tell a story about your business’s strengths, opportunities and potential.

Tips when negotiating

In the negotiation phase, consider keeping multiple buyers engaged (if possible), providing backup options if your preferred buyer falls through. Be flexible and creative with the way you deal. Tips to consider include:

highlighting what sets your business apart, for example, loyal customers, strong supplier relationships, valuable IP, or a prime location;
setting clear boundaries and defining non-negotiables upfront, such as:
– minimum price; and/or
– contract terms.
considering flexible deal structures like staggered payments or earn-outs to bridge valuation gaps and secure a better outcome;
backing your price with solid market data, like using industry benchmarks and comparable sales;
focusing on the full deal, including:
– payment terms;
– handover period; and
– post-sale support.

The business sale agreement

Once you’ve reached a successful sale agreement, it is vital to keep documented details of everything. A well-drafted business sale agreement outlines:

terms and conditions for example:
– the identities and ABNs of both seller and buyer; and
– exactly what is being sold (assets, shares, or both);
– purchase price and payment terms;
– warranties and representations; and
– GST treatment.
conditions precedent (requirements that must be met before the sale can proceed) for example;
– regulatory approvals;
– third-party consents;
– due diligence completion;
– financing approval; and
– lease transfers.
business components:
– assets;
– contracts;
– staff; and
– liabilities.
completion arrangements.
post-sale obligations, for example:
– non-compete clauses;
– transition services; or
– training periods.

To ensure protection for both seller and buyer, professional legal advice is highly recommended, if not required.

Read about “What Should be Included in a Business Contract Sale?”

Legal and regulatory requirements

Selling a business in Australia is governed by a range of legal, tax and regulatory frameworks. Key aspects include:

Key legal compliance areas

honouring consumer rights under the Australian Consumer Law (ACL), including warranties and refunds after the sale;
avoiding anti-competitive conduct as required by the Competition and Consumer Act 2010;
managing tax obligations, including but not limited to, GST, CGT, and stamp duty; and
handling customer data lawfully in line with the Privacy Act.

Transfer of assets and contracts

All business assets, like equipment, intellectual property, leases and major contracts, must be properly transferred to the buyer. This often requires consent from landlords, lessors or other third parties, especially for leases or licensed operations.

Employee Transfer

Announce to your staff about the sale with enough time, being clear about the transfer plan and what will happen to your employees. This can help to maintain morale and prevent key employees from leaving before the sale.

Employee transfers must comply with the Fair Work Act, ensuring entitlements and service continuity, with clear communication throughout.

Licenses and permits

Ensure all necessary business licenses are transferred or reissued to the buyer, assigning Intellectual Property, transferring the business names, trademarks, permits, etc.

Finalising the deal and post-sale considerations

The moment the ownership formally transfers is called the settlement day, and although it may seem like the sale would be over at this point, there are a few final aspects to take care of, including:

keeping records and documents related to the business sale for at least five years, as required by law;
completing all compliance steps, including notifying ASIC, the ATO, and updating business registers;
planning for ongoing obligations like restraint of trade, warranties and transition support, which may affect you post-sale; and
consulting professionals for tax planning to optimise your after-tax proceeds.

Read about “Things you need to know before closing your business.”

Conclusion

Selling your business successfully requires careful planning to protect your interests and maximise your return. With the right support, you can make all the difference.

H+A Legal specialises in guiding Australian business owners through business transactions, drafting and reviewing key contracts, ensuring compliance, managing post-sale obligations, and more.

Trust our team to be your partner in achieving a successful business sale that sets you up for the next chapter of your journey. Reach out to us today.

Ultimate Sale of Business Guide in Australia