So you’ve put in a few good years, built up your business and now the shimmering waters of early retirement or semi-retirement are visible on the horizon.
While nothing can replace the value of a strong client base and good financial management of your business in ensuring you get the best sale price, there are a few things which, with a bit of foresight and planning, can help you maximize your sale price.
Here is our list of the top 5 considerations:
1. Protect client sources
One of the key determinates of the value of your business will be tied to your clients, and client sources. As such, it is extremely important to ensure that, before a sale, any key client relationships and referral relationships are supported by solid written agreements wherever possible. These agreements are often pivotal in proving that your business has locked-in and transferable value.
2. Secure your equipment
One of the most valuable assets of many businesses is often its equipment. If equipment is owned, the nature of the entity owning the equipment (whether it be a service company or a trust) will have implications for the transfer of the business, access to depreciation benefits and, consequently, to tax benefits.
If the equipment is leased, ensure that the equipment leases can be assigned to the buyer.
3. Secure your premises
Often the location of your business is integral to its value. If your premises are leased, ensure the lease does not expire during the sale period. If there is a risk that it may, factor in a possible renegotiation of the lease. Be prepared to deal with an assignment of the lease to the buyer.
If the premises are owned, consider if a sale and leaseback would be beneficial.
4. Understand the implications of different sale structures
Whether your business is operated through a trust or a company structure will have important consequences when it comes to the ability to sell the goodwill in the business. This in turn can have important implications for accessing capital gains tax concessions.
Additionally, if your business is operated through a company structure, determining whether to sell your interests by way of a business sale, a share sale, or an asset sale can have serious tax and legal implications.
In the case of a business sale or an asset sale, your company will sell the business or assets, receive the sale funds, then distribute the funds to you, as owner, after paying tax on the capital gain.
In the case of a share sale, the owner of the shares (either you or a trustee on behalf of a trust) will sell those shares, receive the funds and possibly utilise a variety of capital gains tax discounts.
5. Understand your buyer
Not all sellers will have the luxury of choosing a buyer. However, if you do – is it a corporate buyer or is it an individual buyer?
The motivation of corporate buyers are often very different to individual buyers.
In the case of corporate buyers, you should be wary of becoming locked into medium to long term arrangements with onerous claw back provisions – not helpful, when you want to be on that sail boat in a couple of years’ time.
On the other hand, individual buyers will often want to ensure a clean and tidy exit on your part – with strong non-solicitation obligations – which may not always be suitable if your desire is only a semi retirement with guaranteed salary from ongoing employment with the business.
Aspect Legal is a commercial law firm specialising in business sales and acquisitions. As a boutique practice, we only do work that we love and we love what we do. We have been advising business owners for more than a decade – so clearly, we love them too. If you’re thinking of selling your business, or buying a business, contact us on [email protected] for our free “Sale and Purchase Pack” with lots of hints and tips to help you on your way, and a free consultation to get you started.
Disclaimer: The material contained on this website is provided for general information purposes only and does not constitute legal advice. You should not depend upon any information appearing on this website without seeking legal advice. We do not guarantee that the contents of this website will be accurate, complete or up-to-date.
