Key Takeaways
-
Buyers, their accountants and their lenders work from your records, so reconciled accounts come first.
-
The lease can decide whether a sale proceeds, so review its term, options and assignment conditions before you list.
-
Assembling the documents once, in advance, can replace rounds of requests during due diligence.
-
Settle the sale structure and any exclusions with your accountant and solicitor before the first buyer asks.
-
Preparation runs as a sequence of dependencies, and trading needs to hold up throughout it.
Preparing a business for sale is operational work. It means getting the financials, the lease, the documents and the handover into a state a buyer can verify, and done early, it can remove many of the reasons a sale stalls.
A pre-sale business appraisal works from the same records a buyer will ask for, so preparing them first gives the appraisal a reliable base and can show where the gaps are.
Preparation also gives a broker selling your business a complete file to work from, so the information buyers request is ready before the listing goes live rather than gathered under pressure once an offer arrives.
Clean Up the Financials
Financial preparation covers three areas a buyer and their lender will test:
Reconciled Accounts
A buyer’s review generally starts with the numbers. Bring bookkeeping up to date, reconcile every bank and merchant account and check that the financial statements match the activity statements lodged with the Australian Taxation Office.
Bank all takings. Income that does not appear in the books generally cannot be relied on by a buyer or their lender, and claiming it exists can raise doubts about the rest of the figures.
Profit Adjustments
Owner-operated businesses can carry costs a new owner would not, and sometimes leave out costs a new owner would have to pay. Your accountant can prepare an adjusted profit figure that accounts for both. Adjustments can increase or reduce profit, and buyers may challenge any adjustment that cannot be traced to the accounts.
Personal expenses paid through the business are a common example. Stopping them now lets the current year show the business on its own.
Tax and Superannuation
Lodge outstanding returns and activity statements and bring superannuation payments up to date. Unpaid amounts may surface in due diligence and can lead to retentions, warranties or price adjustments in the contract, so ask your accountant to confirm nothing is outstanding before you list.
Review the Lease Early
A buyer generally needs the landlord’s consent to take over the lease, so its terms can decide whether a sale proceeds. Read it with your solicitor and check:
-
Term remaining and any options to renew
-
Landlord requirements for consenting to an assignment
-
Rent, outgoings, review dates and any arrears
-
Permitted use and whether it covers what the business does
-
Make-good and bond obligations at the end of the lease
A lease with little term left and no option, can be hard for a buyer to finance. If that is your position, raise a new lease or an extension with the landlord before marketing starts.
For a retail shop lease assigned as part of a business sale, the Retail Shop Leases Act 1994 (Qld) requires the seller to give the buyer an assignor disclosure statement at least seven days before the buyer signs the sale contract. Ask your solicitor whether your lease is covered and what else the assignment involves.
Assemble the Documents
Buyers tend to ask for a similar set of records, so collect them in one indexed folder before listing and keep it updated across three groups:
Operations and Staff
-
Written procedures for opening, closing, ordering, rostering and service
-
Employee list with roles, start dates, employment agreements and leave balances
-
Rosters and payroll records showing award compliance
-
Supplier list with trading terms and any contracts
Licences and Compliance
-
Food business licence, liquor licence, trade licences and council approvals, with renewal dates
-
Insurance certificates and claims history
-
Workplace health and safety records and any incident reports
-
Registrations for the business name, trade marks and domain names
Assets and Contracts
-
Plant and equipment list with age, condition and service records
-
Equipment finance, hire agreements and any registrations on the Personal Property Securities Register
-
Customer contracts, franchise agreements and service agreements, with any clauses that need consent to transfer
Anything secured by finance generally needs to be paid out or released at settlement, so identify it now and ask your accountant how it affects the proceeds.
Reduce Dependence on You
A buyer is purchasing the business, not the owner. If you open every day, hold every supplier relationship and are the only person who knows the till, a buyer may see risk and price for it.
Documented procedures, a second-in-charge who can run a shift and staff on written agreements can show the business will operate through a handover. That depth is also one of the changes that can increase business value before a sale.
Settle the Sale Structure
Many small business sales transfer the business assets, while the company that owns them stays with the seller. A share sale may suit businesses with licences or contracts that are hard to reassign, but the buyer takes on the company’s history and may ask for broader warranties.
Settle the structure with your accountant and solicitor before listing, because it affects tax treatment, the sale contract terms and what the buyer’s due diligence covers. Decide at the same time what is excluded, such as a vehicle you want to keep, a trade mark or a second location.
Set the Timeline
Preparation runs on dependencies rather than fixed periods. Financials need to be reconciled before an appraisal can be relied on, the lease needs to be reviewed before a settlement date can be set, and licences need to be current before a buyer can apply to transfer them or apply for their own.
Work backwards from when you want to be out. Fixes to the accounts show up in the next set of statements, and a landlord’s response to a new lease request takes as long as the landlord takes. Start the slow items first and leave quick ones, such as tidying the premises and clearing dead stock, until marketing is close.
Keep Trading Well
Buyers look at the most recent trading as closely as the annual accounts, and sales that soften during preparation or marketing may be read as decline, whatever the reason. Keep rostering, ordering and service at their usual standard, and avoid cost cuts that affect customers.
Keep the premises and equipment in working order too. A buyer’s first visit is effectively an inspection, and a broken appliance or an untidy storeroom can raise questions about what else has been left.
Build Your Sale File
Open one indexed folder, list every record a buyer may request and mark what is missing or out of date. Hand the slowest gaps, often the accounts and the lease, to your accountant and solicitor first.
Bond Business Brokers can use that completed file as the starting point for a sale appraisal.
Common Questions
What if my records for earlier years are incomplete?
Gaps in earlier records may reduce the weight a buyer gives those years. Your accountant may be able to rebuild figures from bank statements and lodged activity statements, and buyers may then focus on the most recent complete period.
Can I sell a business that operates through a trust?
Generally yes, with the trustee acting as the seller. The trust deed and the tax position may affect how the sale is structured, so ask your accountant and solicitor to review both before listing.
What if a licence is due to expire before the sale?
Renew it before listing where possible, since a buyer’s transfer or new application may depend on the business holding a current licence. Do not assume an expired licence can be reinstated quickly, and check renewal requirements with the issuing authority.
This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.