Selling a business is one of the most important decisions a business owner will ever face. Regardless of whether it’s a time-honoured family enterprise or a new venture, this process entails meticulous planning, professional guidance, and a keen awareness of tax, legal, and commercial implications. This article delves into the key concerns for business owners gearing up for a sale, emphasising structural readiness, tax optimisation, timing, and the influence of macroeconomic or industry-specific factors.
1. Business structure and sale readiness
Is your business sale-ready?
Many business owners find themselves operating under structures that may have suited them initially—such as sole trader, partnership, trust, or private company—but that might not be the best fit when it’s time to sell. Buyers typically favour simplicity and legal clarity; overly complex structures can complicate due diligence.
Example:
A logistics firm structured as a discretionary trust with many beneficiaries experienced a decline in buyer interest due to its intricate ownership model. After being reorganised into a straightforward corporate entity with defined shareholdings, it was sold within six months.
To align your structure with buyer expectations, consider adopting a company limited by shares with clear asset ownership and tax history, ideally 2–3 years prior to planning a sale.
Clean up the balance sheet
Buyers will closely examine a business’s assets and liabilities. Loans to shareholders, non-core assets, and related-party transactions can complicate evaluations.
Steps to Take:
- Repay or eliminate shareholder loans.
- Write off obsolete inventory.
- Dispose of redundant or non-performing assets.
- Resolve ongoing disputes or litigation, if feasible.
2. Tax planning: Unlocking value and minimising liability
Understanding the Capital Gains Tax (CGT) Landscape
The Capital Gains Tax (CGT) is often the most significant tax liability when selling a business. There are several small business CGT concessions which, if leveraged appropriately, can either eliminate or drastically reduce the tax owed.
The key CGT concessions:
- 15-year exemption: No CGT applies if the business has been owned for 15 years, the owner is over 55, and is retiring.
- 50% active asset reduction: Halves the capital gain on active business assets.
- Retirement exemption: Up to $500,000 of capital gains can be tax-free if contributed to superannuation.
- Rollover relief: Allows deferral of gains when selling one business and acquiring another.
Example:
A software consultancy qualified for the 15-year exemption by ensuring the shares were held by an individual over 55 and that the asset was active, resulting in a $2.8M sale being entirely CGT-free.
Important consideration:
These concessions are intricate, and eligibility relies on factors such as asset usage, ownership durations, turnover thresholds ($2M for certain rules, $6M net asset test for others), and the entity’s specific structure. Early engagement with a qualified accountant is advisable.
Trust distributions and Div 7A implications
If your business is structured through a trust or company, unpaid distributions or loans to beneficiaries/shareholders may activate Division 7A implications, taxing these as unfranked dividends.
Action items:
- Ensure trust distributions are documented and disbursed.
- Review shareholder loans, ensuring repayments or compliant loan agreements are in place.
GST and stamp duty
- GST: Business sales may qualify as GST-free under the ‘going concern’ exemption if the buyer continues the operations.
- Stamp duty: While not universally applicable, certain states (e.g., NSW, VIC) impose stamp duty on business asset sales.
3. Timing the sale: Market, tax year, and life events
Timing within a tax year
Choosing to sell in June instead of July can significantly impact your personal tax return. Postponing a sale until a new financial year can offer more time to prepare, structure super contributions, or potentially improve your tax planning options.
Case in point:
A café sold in late June 2024 left the owners little time to implement superannuation strategies or prepay expenses, while a sale merely weeks later in July might have lowered their overall tax liability.
Economic and industry cycles
Industry valuations fluctuate dramatically based on economic sentiment, legislative changes, and media discourse. Selling in a buyer’s market (where acquisition demand is high) can substantially enhance valuations.
Example:
Childcare businesses experienced a spike in private equity interest in 2022, spurred by government subsidies and market consolidation trends. Business owners who sold during that period realised EBITDA multiples of 7–9x, compared to 4–5x just three years earlier.
Retirement and Health Planning
Numerous owners postpone their sale decisions, only to be compelled to exit abruptly due to health issues or burnout. Planning for a sale years in advance allows for more flexibility in negotiations, tax reduction, and succession grooming for a key employee or successor.
4. Accounting and financial housekeeping
Normalising earnings
Buyers assess businesses based on ‘normalised EBITDA’—earnings that are adjusted for one-off events, personal expenses, or non-recurring revenues/costs.
Action plan:
- Cease channelling personal expenses through the business.
- Identify and document add-backs transparently.
- Minimise reliance on key individuals, including the owner.
Updated financials and forecasting
Buyers will seek:
- The last three years of accountant-prepared financial statements.
- Year-to-date management reports.
- Projections indicating future growth potential.
Best practice:
Collaborate with your accountant to ensure accrual-based records, aged receivables/payables, and reconciled accounts, as sloppy or unclear financials may hinder deals.
Due diligence preparation
Establish a virtual data room containing:
- Tax returns (company/trust/individual) for the past 3–5 years.
- Copies of key contracts (leases, supplier agreements, employment contracts).
- Asset register.
- Records of IP and domain ownership.
Tip:
Conduct your own “vendor due diligence” before going to market to identify any red flags before a potential buyer does.
5. Legal and regulatory compliance
Contracts, IP, and licences
Ensure that all contracts are:
- In the business name (not the personal name).
- Assignable to a buyer.
- Current and signed.
Verify that:
- Trademarks and domain names are registered and owned by the business.
- Any necessary government or industry licences are current.
Employment law
Employee entitlements (long service leave, annual leave, redundancy, etc.) must be adequately considered. Some buyers will require the seller to settle these entitlements at closing.
Modern award compliance remains a critical concern. In 2020, several hospitality businesses were embroiled in underpayment scandals, impeding sales and necessitating rectification.
Data and privacy laws
This is particularly relevant for technology businesses but applies to any enterprise handling customer data. Proposed revisions to Australian privacy laws (effective as of 2024) may heighten buyer apprehensions regarding possible liabilities.
6. Technological, legislative and industry trends
The impact of AI and automation
Businesses that leverage technology (e.g., CRM systems, cloud accounting, and inventory tracking) tend to be more efficient and appealing to buyers.
Example:
Two regional veterinary practices went to market in 2023. One maintained paper-based systems and inadequate records, while the other utilised cloud-based software, automated appointment reminders, and centralised records. The latter secured a sale at a 20% higher price.
ESG and sustainability
Environmental, Social, and Governance (ESG) practices increasingly impact private equity and institutional buyer decisions. Sustainable sourcing, low emissions, and fair wages may elevate valuations or broaden the buyer pool.
Changes in law
Impending legal changes—such as modifications to superannuation contribution caps, company director identification codes, and enhanced enforcement by the ATO and ASIC—could influence your preparation for a sale.
For instance:
The anticipated 2025 tightening of Division 293 superannuation tax thresholds may render super contributions less appealing for high-income earners, shifting some tax planning tactics before a sale.
7. Emotional and legacy concerns
Letting go
Many owners underestimate the emotional toll of selling a business, particularly one nurtured over decades. This often leads to unrealistic overvaluation, second-guessing, or prolonging the sale process.
Family and Succession
If a family member is purchasing or assuming control of the business, concerns about fairness, estate planning, and possibly phased transitions or vendor financing arise.
Example:
An agribusiness in regional NSW was sold to the owner’s son at a discounted valuation, including a five-year earn-out and coaching period. This arrangement maintained harmony whilst facilitating a generational transition.
8. Practical steps to take now
- Engage a tax adviser and lawyer 2–3 years prior to your intended sale.
- Obtain a business valuation to understand your business’s current worth and identify strategies to enhance that value.
- Prepare a second-in-command to mitigate key person dependency.
- Define a buyer profile: Is your ideal buyer a competitor, private equity firm, a customer, or a family member?
- Start contemplating life post-sale. Retirement, philanthropy, consulting, or a new venture?
Ultimately, selling a business involves multiple facets beyond simply locating a buyer. It demands careful tax strategy, legal and operational preparedness, an understanding of industry trends, and emotional readiness. The earlier you commence your preparation, the greater the likelihood that you will achieve a superior valuation, experience a seamless process, and leave behind a legacy of which you can be proud. No two exits are identical, but with the right groundwork, expert advice, and awareness of your business’s strengths and weaknesses, you can transform a potentially stressful transition into a strategic success.
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