Building a Business Worth Selling

Building your own business takes years of sacrifice, hard work and often delayed earnings. Selling your business for the right price, is a chance to reap the substantial rewards for your years of hard work and associated risks.

Key things to think about when starting your business

  1. Structure – Getting the business structure right could make a huge difference to capital gains tax when it comes time to sell. If it is a small business as defined by the Australian Tax Office (generally one with assets valued at less than $6 million or turnover of less than $2 million), any capital gain on the sale may be free of tax and used as a retirement nest egg. In some instances, structures require changing prior to sale in order to achieve the desired outcome. This is a common path for businesses run through a family or discretionary trust, as this could prove problematic for a buyer and may need to be restructured prior to sale.
  2. Organisational Structure – It is important to create good business habits from the word go. Keeping your financials organised, creating a clear organisational structure and ongoing maintenance of business policy will ensure that your business is an efficiently run, attractive option for prospective buyers when the time comes to sell. It is also important to work on separating the goodwill of the business from the owner himself. This allows for a more seamless transition when the business is sold.
  3. Results – Is your business performing well? Is there anything you can do to increase sales during the last few financial years of operation prior to sale? Prospective buyers will pay a higher price for a business that is performing well and showing signs of growth — therefore, positive trends with future growth potential is a key element in securing a higher multiple for the business.
  4. Forecasting – As a business owner, put on a buyer’s hat to confirm all aspects have been thought through and addressed prior to sale. For instance, do you own all intellectual property and have all licenses been renewed? Is your business registration current? What are the terms of your lease to ensure continuity? Common speed bumps during the due diligence process are due to oversights by the seller. Imagine you are buying your business and ask yourself what you would look for. In particular, ask yourself what risks could be associated with the business and then work towards eliminating or reducing these risks before selling. By doing this, there will be fewer surprises during the sale process, as all speed bumps will have been discovered and addressed in advance.
  5. Exit strategy – It may seem pointless to create an exit strategy when creating your business, but it’s this next level of planning that allow for the smoothest transition possible when it comes time to sell your business. Instead of tackling this task when you’ve decided you’re going to sell, create it at the beginning and modify it annually to keep it relevant and up to date.

Your business goals will no doubt change drastically from day one through to the final day of ownership. You may have poured all your financial resources into your business, which puts pressure on achieving the maximum sale price in order to reap the rewards of your hard labour. However, it is important to note that the sale price is always relative to the current market, trends, economy and the performance of the business. All these variables come together to determine the final sale price of your business, but the ability to demonstrate good profits throughout different cycles in the economy is paramount.

In order to plan for the best possible outcome, it is important to ensure you are doing all that you can from the word GO.

For assistance with your sale preparation, contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. One of our professional and knowledgeable team will be more than happy to discuss your options and answer any questions you may have.

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