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Selling a Business - Issues to Consider

Selling A Business

By: Law 4U

What to think about

Some of the issues you should consider before selling are:
  • What are you selling, e.g. are the assets to be sold separately? is the business a going concern? is the goodwill for sale? is there proper title for each asset?
  • What information will be provided to the potential buyer, e.g. accounting records; the accuracy of statements made to entice the buyer.
  • Whether the buyer can continue to run the business successfully during any transition period following purchase, e.g. training the purchaser and introducing them to established customers.
  • Whether the financial records of the business are up to scratch and what should be done to get them into shape, e.g. detailed information about business debts, loans, whether the debt will be assumed by the buyer etc.
  • Is the business is leased premises? If it is will the landlord agree to transfer the lease?
  • Tax implications, e.g. capital gains tax, value of stock, roll over relief etc.
  • The business's market and the nature of competition.
Valuation

Formal valuations of businesses are normally carried out by people with the appropriate qualifications. There is no specific method or manner of valuation, and often it depends on the type of business and the circumstances of its sale.

A valuation may also include a determination of the "net tangible assets" of the business, i.e. taking into account the liabilities of the business and the current value of the assets. The current value must reflect the written down value of the assets, which may be different depending on whether the business is a going concern or the assets are to be sold.

Goodwill

This is part of what is being sold in a going concern, and will often be the largest percentage of the saleable assets of the business. Considerations should include whether:
  • the business name and any trademarks or other intellectual property is part of the sale;
  • the seller has an obligation to maintain the goodwill until the transfer of the business;
  • training of the buyer is included in the sale;
  • the buyer will be introduced and promoted to established customers;
  • contracts with customers and suppliers are part of the sale;
  • there will be a restraint of trade agreement, e.g. the vendor agrees not to open a similar business within a certain geographical area or restrictions on the right to assist a competitor.
Selling expenses

Don't underestimate the expenses that you may face in selling the business, for example:
  • repair and maintenance of assets before sale;
  • advertising the sale;
  • professional costs to lawyers, accountants, business brokers etc.
Who sells?

  • Brokers are professionals who sell businesses in a similar way that real estate agents sell private property. They may be able to identify a competitor or investor as a potential buyer;
  • Accountants will often be able to help in the sale of a business and its valuation;
  • Lawyers are a good start when beginning negotiations with potential buyers, and can handle the legal aspects of the transfer.
 Advertising

It's important to choose the best method of advertising the sale of the business, and to take professional advice before you make any decisions. Possibilities include:
  • Newspaper advertising, which usually has a separate classified section devoted to "businesses for sale". You should also get advice about whether an advertisement should be placed in a trade journal and specialist publications;
  • Sending letters to potential buyers, usually competitors;
  • Direct approach by a broker or other professional who can also negotiate on your behalf.
Payment

You should think about:
  • the deposit that will be required following the agreement to sell and bind the parties to the contract of sale;
  • when and how the balance of the purchase price will be paid, e.g. the number of days for settlement (usually 30 days);
  • ensuring there is no doubt about the buyer's obligations to insure the business when this becomes applicable.
 
 

Read this: This fact sheet is intended to be general information about the law in Australia. It is not a substitute for legal or other professional advice. Lawscape Communications Pty Ltd or First Point Media does not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet.

© Lawscape Communications P/L

Last Updated – February 2008