When the moment arrives to sell your business—whether you’re running it as a sole trader, partnership, or company—you’ll aim to secure the highest possible price. Additionally, it’s essential to understand the process of selling, identify potential buyers, and accurately assess the true value of your business.
Considering the sale of your business is a viable option at any point, whether you’re in the pre-launch phase or nearing retirement. Some entrepreneurs initiate their ventures with a predetermined plan to sell within a specific timeframe, such as five to seven years. Conversely, for others, the decision to sell arises after establishing the business or operating it for an extended period, as they seek to take a step back.
Since selling a business requires specialised expertise, it’s advisable to enlist the assistance of an advisor.
Getting ready to sell
To maximise your return on investment when selling a business, it’s essential to ensure it is in optimal condition. Here are the key areas to focus on:
Finances
Prospective buyers will conduct a comprehensive examination of your finances to ensure they are investing in a stable, profitable enterprise. If your financial records do not support your asking price, you may need to adjust your selling price or reinvest in the business to enhance its appeal. To ensure your finances are optimised for sale:
- Sell assets that your business no longer utilises.
- Cease investments in long-term projects.
- Create a realistic financial forecast; an experienced business advisor will detect any inflated projections.
Business plan
Prospective buyers will request your business plan, so if you haven’t already developed one, it’s crucial to create one. Your business plan should demonstrate the efficiency of your operations, the strength of your management team, and outline your strategies for future growth.
Business planning tools and tips
Tip: Address any staffing problems before you put the business up for sale.
Buyers may be put off if there’s a risk of inheriting difficult employment relationships.
Resolving employment issues has more tips.
Succession planning
A succession plan establishes procedures to ensure the successful operation of your business in your absence. Having such a plan is crucial if you’re considering selling the business or transitioning to a less active role.
Assets
Ensure that all machinery and equipment are well-maintained. Conduct a thorough cleaning of your premises and address any maintenance issues promptly.
Risks
A new owner will aim to start smoothly and effectively, so:
- Secure contracts with key suppliers and customers.
- Address any imminent issues, such as updating paperwork for compliance changes.
- Ensure compliance with health and safety standards and other obligations as the owner or employer.
Legal issues
Buyers can be greatly concerned if they discover an undisclosed pending legal case. Before putting the business up for sale, make sure you:
- Resolve any ongoing legal disputes.
- Protect your intellectual property rights.
- Ensure that all assets listed on the balance sheet are owned by the business.
Information for buyers
Create an information memorandum detailing your business, outlining essential details for potential buyers to make informed decisions. Emphasize factual information and demonstrate potential avenues for business growth.
Stepping back from your business
Tip: Carefully consider the contents of your information pack, omitting confidential data that could potentially be leaked, such as customer information. Seek professional assistance to craft the pack effectively.
Who’ll buy your business?
Finding and negotiating with potential buyers is a time-consuming and specialized task, so consider hiring a business broker to handle it for you. A broker will understand the types of buyers interested in your business and how to approach them. Buyers may include:
- employees — this is known as a management buyout
- competitors
- suppliers or customers
- entrepreneurs
- investment groups.
What’s my business worth?
It may seem obvious, but the value of your business is ultimately determined by what someone is willing to pay for it. Owners and shareholders frequently overestimate their business’s worth. An advisor can assist you in accurately assessing the value of your business based on factors such as its assets, profitability, or the cost for a buyer to establish a similar business from scratch.
When to consider intellectual property
Selling
In New Zealand, there is no capital gains tax, meaning you won’t be taxed on profits from selling a business. However, other taxes and obligations may still apply. Additionally, your options when selling can vary based on your business structure. Consulting with a professional advisor is advisable for specialized assistance in navigating these considerations.
Sole traders
Selling your assets may incur GST obligations if both the buyer and seller are GST registered. It’s advisable to consult with an accountant to discuss GST and income tax implications before proceeding with the sale of your assets.
Selling shares
If you own all shares in your company, you might consider selling the business as a going concern. When selling shares, it is your responsibility to update shareholder details with the Companies Office. Alternatively, you can authorise a director with company authority to do this on your behalf.
Finance tips to help your business
Tip: Selling your shares could have tax implications — talk to your accountant or tax advisor first.
Intellectual property
Your intellectual property (IP) can significantly contribute to the value of your business for potential buyers. Therefore, ensure that any intellectual property owned by your business has been adequately protected and registered.
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