Selling a business is one of the most critical decisions a business owner will face. Regardless of whether it’s a long-established family business or a newly expanded venture, the sale process requires meticulous planning, professional guidance, and a thorough understanding of the tax, legal, and commercial environment. This article delves into the most significant concerns for business owners gearing up to sell, emphasising structural preparedness, tax optimisation, timing, and the impact of macroeconomic or industry-specific factors.
1. Business Structure and Sale Readiness
Is Your Business Sale-Ready?
Many business owners begin with structures that are suitable for initial growth—such as a sole trader, partnership, trust, or private company—but these may not be ideal at the time of sale. Buyers often favour simplicity and legal clarity; complex structures can create unnecessary complications during due diligence.
Example:
A logistics business structured as a discretionary trust with various beneficiaries noticed diminishing buyer interest due to its intricate ownership model. Once restructured into a straightforward corporate entity with defined shareholdings, the business sold within six months.
Align your structure with what potential buyers expect, typically a company limited by shares with clear asset ownership and tax history, at least 2–3 years before you plan to sell.
Clean Up the Balance Sheet
Buyers will meticulously examine both assets and liabilities. Shareholder loans, non-core assets, or related-party transactions can complicate matters.
- 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
CGT usually represents the largest tax liability when selling a business. However, there are several small business CGT concessions that, if applied correctly, can greatly reduce or even eliminate tax obligations.
Key CGT Concessions:
- 15-Year Exemption: No CGT for businesses owned for 15 years by individuals over 55 who are 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: Defer gains when selling one business and purchasing another.
Example:
A software consulting firm leveraged the 15-year exemption by ensuring shares were held by an over-55 individual and that the asset was classified as active. Their $2.8M sale incurred no CGT.
Important Consideration:
These concessions can be complicated. Eligibility often depends on several factors, including asset utilisation, ownership duration, turnover limits ($2M for some rules, $6M net asset test for others), and the specific structure of the business entity. It’s advisable to consult an experienced accountant early in the process.
Trust Distributions and Division 7A Implications
If your business operates as a trust or company, unpaid distributions or loans to beneficiaries/shareholders may invoke Division 7A implications, taxing them as unfranked dividends.
Action Items:
- Ensure trust distributions are documented and paid.
- Review shareholder loans and confirm repayments or compliant loan agreements are in place.
GST and Stamp Duty
- GST: Business sales may be GST-free under the ‘going concern’ exemption if the buyer continues the business.
- Stamp Duty: While not universally applicable, various 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 rather than July can have a significant impact on your personal tax return. Postponing a sale into a new financial year can offer additional preparation time, allow for strategic super contributions, or provide a more advantageous tax planning window.
Case in Point:
A café that sold in late June 2024 left owners little opportunity for superannuation strategies or prepayment of expenses. A sale just weeks later in July could have resulted in a reduced overall tax bill.
Economic and Industry Cycles
Industry multiples can vary greatly based on economic confidence, legislative shifts, and media narratives. Selling during a buyer’s market (high acquisition demand) can significantly enhance valuations.
Example:
Childcare businesses experienced an uptick in private equity interest in 2022, propelled by government subsidies and market consolidation trends. Owners who sold during this period achieved 7–9x EBITDA multiples, compared to 4–5x just three years earlier.
Retirement and Health Planning
Many owners procrastinate on sale decisions and may be forced to sell unexpectedly due to health issues or burnout. Planning the sale several years in advance allows for negotiated flexibility, reduced tax burdens, and the potential grooming of a successor or key personnel.
4. Accounting and Financial Housekeeping
Normalising Earnings
Potential buyers examine businesses based on ‘normalised EBITDA’—earnings adjusted for irregular items, personal expenses from owners, or one-off revenues/costs.
Action Plan:
- Avoid running personal expenses through the business.
- Identify and document add-backs transparently.
- Minimise reliance on key individuals, including the owner.
Updated Financials and Forecasting
Prospective buyers will want access to:
- The last three years of accountant-prepared financial statements.
- Year-to-date management reports.
- Forecasts that exhibit future growth potential.
Best Practice:
Collaborate with your accountant to ensure records are accrual-based, aged receivables/payables are up to date, and accounts are reconciled. Disorganised or unclear financial documentation may impede the sale process.
Due Diligence Preparation
Create a virtual data room that includes:
- Tax returns (company/trust/individual) for the past 3–5 years.
- Copies of key contracts (leases, supplier agreements, employment contracts).
- Asset register.
- Intellectual property and domain ownership documentation.
Tip:
Conduct your own “vendor due diligence” prior to listing the business to identify potential issues before prospective buyers do.
5. Legal and Regulatory Compliance
Contracts, IP, and Licences
All contracts should be:
- In the business name (not personal name).
- Assignable to a new buyer.
- Current and properly signed.
Be sure that:
- Trademarks and domain names are registered and owned by the business.
- Any requisite government or industry licences are up to date.
Employment Law
Employee entitlements (e.g., long service leave, annual leave, redundancy) must be accurately accounted for, as some buyers will expect the seller to pay these at settlement.
Compliance with Modern Awards: In 2020, several hospitality businesses faced underpayment scandals that interrupted sales and necessitated rectifications.
Data and Privacy Laws
This is particularly relevant for technology businesses but applies to any organisation handling customer data. New Australian privacy reforms (anticipated to increase penalties and enforcement obligations in 2024) may heighten buyer concerns regarding possible liabilities.
6. Technological, Legislative and Industry Trends
The Impact of AI and Automation
Businesses that embrace technology (e.g., CRM systems, cloud accounting, and inventory management) tend to operate more efficiently and are more appealing to buyers.
Example:
Two regional veterinary practices entered the market in 2023. One relied on paper documents and had poor records; the other utilised cloud-based software, automated appointment reminders, and centralised documentation. The second practice sold for 20% more.
ESG and Sustainability
Environmental, Social, and Governance (ESG) practices are increasingly influencing decisions by private equity and institutional buyers. Sustainable sourcing, low emissions, and fair wage practices can enhance valuation and widen the pool of potential buyers.
Changes in Law
Upcoming legal reforms—such as changes to superannuation contribution caps, company director identification laws, and intensified enforcement from the ATO and ASIC—can impact your preparations for a sale.
For instance:
The tightening of Division 293 superannuation tax thresholds in 2025 may make super contributions less appealing for high-income earners, shifting certain tax planning strategies leading up to the sale.
7. Emotional and Legacy Concerns
Letting Go
Many owners underestimate the emotional burden of selling a business, especially one built over many years. This can lead to inflated valuations, second-guessing, or prolonging the selling process.
Family and Succession
If a family member purchases or takes over the business, considerations shift towards equity, estate planning, and potentially staged transitions or vendor financing.
Example:
An agribusiness in regional NSW was sold to the owner’s son at a discounted valuation, incorporating a five-year earn-out and coaching period. This structure preserved family harmony while facilitating a generational transition.
8. Practical Steps to Take Now
- Engage a tax advisor and lawyer 2–3 years prior to your planned sale.
- Obtain a business valuation to comprehend your current worth and how to enhance it.
- Develop a second-in-command to mitigate the risk of dependence on any key individual.
- Create a buyer profile: Consider whether your ideal buyer is a competitor, private equity firm, a client, or a family member.
- Start contemplating life post-sale. What will retirement, philanthropy, consulting, or a new venture look like?
Selling a business is a complex process that goes beyond merely finding a buyer. It necessitates thorough tax planning, legal and operational readiness, industry awareness, and emotional preparedness. The earlier you begin your preparations, the greater your chances of achieving a higher valuation, a smoother selling process, and a legacy you can take pride in. Each exit is unique, but with the right preparation, expert guidance, and an understanding of your business’s strengths and weaknesses, you can transform a potentially stressful transition into a strategic achievement.
