12 December 2018
Buying or selling a business can be complicated and there can be many unexpected hiccups if you don’t engage the right partners and follow the right processes.
In this two-part series, we sit down with AR Advisors Director, Kris Elliot, to find out more about the risks involved in buying and selling a business, and the things you need to consider, to make sure you come out on top.
PART 2: SELLING A BUSINESS
How do you know if it’s the right time to sell your business?
There are many different reasons why someone might choose to sell a business. It could be because they’ve made it as profitable as it is ever going to be, and they’ve decided to move onto something else. It could be because the business simply isn’t performing as they had expected. Or, it could be because they want a change in lifestyle that doesn’t revolve around being a business owner. There is never a single factor that determines whether or not it is the right time – it’s really about assessing where you are now and whether keeping the business will help you get to where you want to go.
If you’ve decided to sell the business, what’s the first thing you need to do?
The first step is to figure out exactly what it is that you are selling – is it the whole business or just your share? Is it just the goodwill you are selling? Does the sale include all property and equipment? It’s important that you nut this out upfront before you officially put the business on the market.
And how do you know if you are asking for the right price?
There are a few different ways to determine a business’ value. Generally speaking, the higher the profitability of the business, the greater the sale price will be. Your accountant can work with you upfront to determine an estimated value and should be able to connect you with a business broker who can provide a more accurate assessment and valuation. The broker will also then assist in marketing and selling the business.
So, if I need to go to a broker anyway, why should I get my accountant involved at all?
There are a number of reasons why you should get your accountant involved as early as possible in the process. While a broker will help you sell the business, your accountant can help make sure you come out of the process in the best possible financial position.
Firstly, by providing an initial value estimate, you can get a better understanding of whether or not to go ahead with the sale and what the tax implications will be. For example, your accountant will know about the latest concessions available, which could considerably reduce the amount of capital gains tax you have to pay. If you involve your accountant too late in the process, you may miss out on these concessions altogether.
Secondly, while your accountant can’t sell the business for you, they can help you achieve maximum sale value. When someone buys a business, if they are smart, they will do their due diligence and ask for a lot of information. Your accountant can help you to have this information at your fingertips and can also help you to package the information up in a way that makes the sale more appealing to the buyer. For example, adjusting for items such as personal expenses, depreciation, interest etc. from the business’ accounts can help to increase the sale price. It’s not about covering anything up or misleading the buyer, it’s about presenting the business numbers with greater clarity to help alleviate any concerns or doubts that the buyer may have.
Thirdly, your accountant can help guide you through the process and connect you with the relevant third parties at the right times – such as a broker and a lawyer. Involving a lawyer will help make the sale watertight from date of settlement. This is important to ensure the business does not present a liability for you after sale.
Any other advice you can offer?
It’s important to remember that the sale process can vary quite dramatically for different entities with regards to what you must do as a business owner. So, even if you’ve been through the process once before, don’t automatically assume it will be the same second time around. Get the right partners on board (accountant, lawyer, broker) and take your time to do it right. While you may just want to get it over and done with (particularly if you have an interested buyer!), you also want to make sure you come out in the best possible position at the end of it. The right partners can help ensure that happens.
If you would like to know more or are thinking of selling a business yourself, get in touch with Kris and the team at AR Advisors - info@aradvisors.com
Read Q&A WITH KRIS: BUYING AND SELLING A BUSINESS PART 1 HERE!