Adding Value to Your Business Before it’s Time to Sell

A successful business could change hands many times during its life, whether to family members or unrelated parties who are passionate about continuing what you started. When it comes time to sell your business, it is important to present it to potential buyers in the best possible light. This doesn’t mean just looking good on the outside, your business should be profitable and functioning well to appeal to prospective buyers. Importantly, has the business “divorced” itself from you (the owner) so that the Goodwill vests in the business itself and is not seen to be part of you.

We’ve discussed the importance of exit planning here, but to recap – exit planning is essential for the survival of your business, for the sole fact that not all sales are gradual processes. Some occur due to sudden events, such as ill-health or family issues. Having an exit strategy in place ensures a smoother transition when it comes time to sell your business.

A great way to prepare your business for sale is to view your business through the eyes of a prospective buyer. Would you want to buy your business if you viewed it with fresh eyes? If the answer isn’t a concrete ‘YES’ then you have work to do. Here are some ways you can add value to your business when preparing to sell:

  • Make sure all financials are up to date
  • Show proof of profitability (even with certain adjustments)
  • Ensure all necessary contracts are in place, up to date and transferrable
  • Tidy up processes, manuals and other key operational documents
  • Make sure your lease is secure
  • Sell off plant and equipment as well as other assets that no longer contribute to the business so that they do not represent any weaknesses and become a distraction in the sale process. The same applies with any redundant or old stock.
  • Do a general ‘tidy’ of the premises. Although we don’t like to judge a book by its cover, the tattered book stays on the shelf
  • Organisational structure – are there key staff in place and how critical are your functions to the business?

By doing the above, you are adding value to your business – which ultimately looks attractive to potential buyers. For more information on what you can do to add value to your business, contact Core Business Brokers today, on (02) 9413 2977, or email Roy on [email protected]. Our experience in business sales is second-to-none, which allows us to provide honest advice to our clients.

Valuation vs. Appraisal – Which One Do I Need?

When you approach the end of your business ownership journey and are preparing to sell, you need to determine the market price of your business. A business’ market price is dependent on current market conditions, it’s history of success & profitability, future profit forecasts, goodwill, stock, assets and much more. Determining the ‘value’ of your business during this process leads to many business owners thinking they require a ‘valuation’ – however, this may not be the case. Let us explain the difference between a business valuation and a business appraisal, so you can determine which suits your situation best and what to ask for when consulting with your business broker.

What is a business appraisal?

A business appraisal is a service that all business brokers should provide. It involves their calculated appraisal of your business, taking into account several important factors and using their wealth of industry experience to lead the way. Due to this being an educated opinion, you may find that you receive different values with different brokers. Keep in mind, that a good broker will be honest and set realistic expectations – even if this means disappointing you in the short term. After all, there is no point in raising expectations and listing your business for double the realistic market price and then have it remaining on the market for years without any serious interest. That being said, you want to make sure you engage a trustworthy, experienced business broker who will take into account all necessary information to appraise your business properly and provide you with an honest and realistic value range whilst being able to explain the rationale in arriving at this conclusion.

If you are concerned with your appraised market price, discuss this result with your broker. At Core Business Brokers, we are happy to sit down and explain how we’ve come to the market price presented, as we believe honesty and transparency throughout the business sale process are key. In addition, having one of the Principals as a qualified accountant means that they can engage professionally with your accountant in making the assessment.

What is a business valuation?

 A business valuation is performed by an accredited business valuer. Unlike an appraisal, not all business brokers can conduct a valuation. There are a couple of big differences between a business valuation and an appraisal. Firstly, most business brokers do not charge for a business appraisal – it is performed in the hope that the seller will list their business with them if they decide to go to market. A valuation, however, costs between $3,000 and $4,000 on average. Why do Valuers charge for this service? Because a valuation is much more in-depth than an appraisal. Commonly used for court proceedings, taxation or insurance requirements, banks and the ATO require a high level of detail and accuracy when a business broker conducts a valuation. A valuation is a handy tool for potential buyers, as it is a more accurate depiction of the business.

If you are still unsure as to which service you require in your unique situation, 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.

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.

Family Business – Is Your Succession Plan in Place?

Succession planning, otherwise known as creating an ‘exit strategy’ is both an important and beneficial planning tool for anyone owning their own business. However, for a family-owned and operated business, there are even more considerations than normal; as instead of setting your business up for a new owner to take over, the plan may be to gradually pass on your business to a family member(s), hand the reigns over entirely or enter into another agreement which sees you still play an active, although reduced role in the day-to-day operations. Add the fact that you’re working with family – and I’m sure you can understand that the process can become quite complicated and often emotional.

Family Business

Regardless of the type of succession plan created, it is vital that the new owner can assume ownership of the business, with all main functions and responsibilities covered. Operations should continue as normal, with little to no disruption of the business activities during the transition process. 

When creating a succession plan for your family business, some questions to consider include:

  • Have you developed a strategic plan for the business which incorporates succession planning? Where is the business headed? How can it continue along this growth path?
  • Have you visualised what the ‘end’ looks like for your family business? E.g. succession by the next generation, to sell your business to an unrelated third-party or an initial public offer?
  • Have you considered a strategy for ‘professionalised’ management of your family business?
  • Have you established procedures to determine issues relating to the family and the family business?
  • Have you established policies relative to the employment of family members?
  • Have you established policies regarding the remuneration to be paid to family members?
  • Have you benchmarked the family business’ performance against other similar businesses?
  • Have you established policies and procedures that would enable the family business to employ external executives, including an external CEO if necessary?
  • Have you established policies and procedures for the family to appoint both an internal and possible external board of directors?

A strategic plan includes strategies to assist in the development of family businesses and protocols

related to a family constitution, succession plan and the appointment of a Family Council (if any).

The size of your business will dictate which of the above elements may be required and whether you should consider how you sell your business on the open market, if that is your goal.

Whether you wish the business to remain in the hands of the next family generation or prepare for the sale of your business sometime in the future, a comprehensive succession plan will strengthen the business for either possibility.

When it comes to mixing business and family, the process can sometimes become complicated. It is more important than ever to determine clear, concise strategies for achieving your business goals prior to, during and after the succession plan takes effect.

For more information on what you should include in your family business succession plan, or to speak to an experienced family business Broker, contact Core Business Brokers today, on (02) 9413 2977. When it comes to your business sale, we know what we’re doing, right to the core!

Tax Implications When Selling a Business

When selling a business there are many considerations that need to be taken into account. The sale of arguably your largest asset can be an emotional roller coaster, hence being well prepared will assist you through the entire process.

Prior to listing your business for sale, it is vital that all tax implications are understood when conducting the business valuation. This is a crucial step to take before the business is sold, as there can be unintended tax consequences which only emerge at contract stage. These consequences could have a potentially adverse outcome for the Seller – or could prevent the Buyer from settling the deal.

 Examples of possible tax issues could include:

  • Value of fixed assets included in the sale – It is important that during the asset valuation, that the depreciated value of the fixed assets be considered. This will both impact the Seller and the Buyer and therefore, it is important to accurately value the included assets at their written down value. If the assets are valued higher than the balance sheet values, there may be a depreciation write back with tax implications for the Seller.
  • GST requirements – GST may apply to your business sale, depending on the structure of the agreement. If GST applies, then the purchase price will be impacted by an additional 10% at time of settlement, however this can be claimed at the Buyer’s next BAS report so it’s really a cash flow implication.
  • Capital Gains requirements – There is the possibility for capital gains taxes to be paid depending on the circumstances of the business and the individual shareholders. There may be ways for capital gains tax to be minimised prior to sale, however it is important to discuss any capital gains requirements with your accountant prior to listing your business on the market.

Alongside the above points, there are further things to consider that we urge you to discuss in detail with your accountant prior to listing your business for sale. Core Business Brokers are also able to provide a detailed guide as to how the entire process will work so that the Seller has a proper understanding of the process and timing which will reduce the potential for error and thus allow all parties to have a clearer understanding of the process. Our goal is to facilitate a smooth, efficient and successful business sale process from start to finish.

If you are thinking about listing your business for sale and would like to discuss the process with a professional, contact Core Business Brokers today on (02) 9413 2977 / [email protected] Our skilled team of Business Brokers have years of knowledge and business sale experience to draw from and a team of professional connections to put you in touch with to make your business sale process as successful as possible.

Understanding Put and Call Options in a Business Sale

Put & Call Options are normally associated with the purchase of shares in a company when the current owner agrees to sell a portion of the shareholding in the business to a new Buyer, while agreeing to remain as a working shareholder in the business for an agreed period of time and on agreed terms. The main reason for such an arrangement is to provide the Buyer with comfort and confidence to learn from the current owner and to gain experience whilst the previous owner still “has skin in the game”.

Such an arrangement is documented in a Shareholders Agreement in which the terms are carefully stated. In order to provide the Seller with a guaranteed exit strategy, the agreement will contain provisions that allow the Buyer to ‘call’ on the Seller to sell the balance of his shares and allow for the Seller to ‘put’ his shares to the Buyer after the agreed period – allowing certainty for both parties.

The formula to calculate the sale price at that time is normally stipulated in the agreement so that there are no arguments.  This is an incredibly useful tool used when creating an exit strategy. A ‘Put and Call Option’ in a Shareholders Agreement could prove beneficial to you as a small business owner.

Let us explain how…

1.   What is a ‘Call’ Option?

A Call option allows the Buyer to ‘call’ for the balance of the shares to be sold to them at an agreed time in the future. This can sometimes be set at a significant event’s occurrence, as opposed to a specific date.

Alongside this, the Buyer can also include a ‘nomination’ in their Call Option Agreement, nominating a third party as a Buyer if they choose to do so.

2.   What is a ‘Put’ Option?

A Put option allows the Seller to prompt the Buyer to buy their remaining shares at a specific price on a specific future date.

Put & Call options in a Shareholder’s Agreement therefore create a similar outcome to a conventional Business Sale Agreement. However, the parties agree that the Seller remain engaged in the business for a longer period.

Why bother?

Mainly used in a business where the current owner of the business has played a major role and is perceived to be attached to the goodwill of the business. This strategy may allow the owner to sell his business as opposed to the business not being profitable and the owner closing it down for Nil value.

However, Put & Call Options need to be incorporated in a Shareholders Agreement, which can be more complex and intricate than a standard Business Sale Agreement. They usually require more time in preparation and potentially more legal expense in the process of creation. Alongside this, additional time may need to be added to the negotiation phase of the sale, allowing both parties to negotiate the terms of the Option Agreement.

If you are interested in exploring your options and discussing the finer details of a Put & Call Option Agreement in the lead up to your Business Sale, contact Core Business Brokers today on (02) 9413 2977 or contact us via email: [email protected]

Our team are more than happy to assist in your situation, answering any questions you may have about the process. 

Instant Asset Write-Off: How Does This Affect Me?

On the 2nd of April 2019, the threshold for small business instant asset write-off increased from $25,000 to $30,000. Announced by the Government, this increase is available to all ‘small businesses’ with an aggregated annual turnover of less than $10 million.

What is instant asset write-off?

Businesses that meet the criteria of a ‘small business’ (if unsure, check your eligibility by clicking here) are able to write-off 100% of new or used business assets up to the value of $30,000 as long as those assets acquired are used in the same financial year. It is important to note that there is no limit to how many assets can be written-off, as long as each asset is less than $30,000 (excluding GST)

What does this mean for my business if I plan to sell?

If you are planning to sell your business, it is important to highlight the depreciation of these assets when calculating your adjusted net profit. The downside is that the written down values of these assets being sold with the business will be a great deal less than what you originally paid for them which means that a buyer will want to negotiate a lower price for these assets as the Buyer will not be able to depreciate these assets as the new owner.

What does this mean if I am looking to buy a business?

As a buyer, the written down value of the assets being sold with the business may allow you to acquire quality business assets at a lower price by arguing that the seller has already obtained a tax advantage with the accelerated depreciation. However, the downside is that the Goodwill may be affected as a result if the price remains as advertised, because the assets will have a lower written down value, therefore increasing the Goodwill component in the purchase price of the business.

Instant Asset Write-off

As always, we encourage all business owners and potential buyers to discuss tax concessions and individual situations in detail, gaining a thorough understanding of your unique situation and how best to proceed when selling your business or purchasing an existing business.

If you are planning to sell your business or looking to buy an existing business, contact Core Business Brokers today. We would be honoured to guide you through your business sale or business purchase journey. Contact us on (02) 9413 2977 to chat with one of our experienced and friendly team or email us at [email protected]

Sale of Shares Vs Business Sale; Which Is Best?

Buying a business can be an intricate and in-depth process. There are many ways a business can be bought, sold or the ownership divided between several parties. A business sale occurs when a business is sold in full, allowing full ownership to be transferred from the previous owner to the buyer. In cases where the business forms part of a company, the process can become more complicated.

Business Sale: This involves a Business Sale Agreement, where the entire business, it’s assets, intellectual property, lease/freehold and all other business components are sold to the buyer, ownership is transferred and then the buyer owns all parts that allow the business to continue as a “going concern”.

The seller retains ownership of the company together with the current assets (cash, debtors, etc) and liabilities. Thus, the buyer starts a new company having purchased the goodwill, business name, fixed assets and possibly stock of the business.

Share Sale: A share sale is when a shareholder of the company that owns the business being acquired, sells their shares to a prospective buyer. This can range between part ownership or full ownership, depending on how many shares are sold and what the arrangement is. Unlike an asset sale, a share sale will include all the assets and liabilities; therefore, it is extremely important for a buyer to conduct a thorough due diligence to determine all risks associated with the share sale. Liabilities include those currently affecting the business as well as those that could potentially affect the business moving forward e.g. taxes owed to ATO. There are, however, positives to a share sale such as potential tax concessions (i.e capital gains tax) that could prove beneficial to the seller whilst being a smoother transition for the purchaser – as all agreements remain intact as well as the ABN, bank account contracts, leases, etc.

In this type of transaction, the seller can be expected to sign personal warranties regarding any past liability that the purchaser may inherit in the future.

Which sale is best for me? A business sale or a share sale?

It is vital to understand the taxation and legal risks associated with each type of sale when determining how best to sell your business or company. As always, we highly suggest discussing all components with your Accountant and Solicitor to determine the suitability of your sale path and to understand each process in detail.

If you are planning to sell your business, contact Core Business Brokers today. We will be more than happy to discuss your options, share our thoughts through countless years of experience and assist in any way possible – to make the process as smooth and effective as we can. Contact us on (02) 9413 2977 or email us at [email protected] to begin the conversation today.

THINGS TO LOOK FOR WHEN SELECTING YOUR BUSINESS BROKER

Some decisions in life shouldn’t be made quickly and carelessly. Finding the perfect wedding photographer for example, or even choosing to propose for that matter! Just as those decisions could change the course of your life, selecting the right Business Broker to sell your business can have ripple effects that can either grow into great surfing waves – or a tsunami (as your business asset is likely to be your largest or 2nd largest asset that you own!)

There are several important factors to consider when selecting your Business Broker. Here at Core Business Brokers, we are firm believers that the most fruitful and successful business transactions occur with a great team in place. Therefore, it is vital to find the best fit for you and your business, when searching for a Broker to assist in the sale.

  • Background and credentials:

    Does this Business Broker have experience in your industry? Are they a member of the AIBB? Have they sold similar size businesses in the past? Do they have a long list of success stories, or are they not transparent about their sales history? It is important to find someone who knows what they are doing, has relevant training and expertise and understands your business and industry. At Core we have a combined 75 years’ experience to call on.

  • Genuine Interest and care:

    Finding a Business Broker who genuinely wants to find you a buyer is a Business Broker you need on your team. If you feel the Broker is just going through the motions and ticking the boxes, they might not be the Broker for you. At Core Business Brokers, we are part of this process for a reason — we love what we do! The principals of Core are intimately involved in their business listings, which not only means they care, but also that their names and reputations are on the line.
    Employ a Business Broker that enjoys their job and finds satisfaction in the success they can achieve for you and your business.

  • Detailed advertising and marketing plan:

    Discuss the plan of attack before signing on the dotted line. What steps will your Business Broker take to advertise and market your business to prospective buyers? Are they up to date with current trends and know what strategies work for your industry? Most importantly, are they flexible to try new methods if appropriate? We pride ourselves by thinking ‘outside the square’ where appropriate.

  • Current workload:

    Find a Business Broker who has time for you. If they are flooded with business listings, it is highly likely that your business may get swept up in a pool of other businesses and not given the time and energy it requires. Make sure your Business Broker can handle their workload and that your business will be made a priority. At Core we believe in quality rather than quantity. Instead of listing thousands of businesses, we are selective in working with the right sellers to ensure we can deliver.

  • Appropriate fee strategy:

    Fee strategies should be discussed from the word GO and transparency is key! Steer clear of giant upfront fees or big monthly retainers. A fee to cover marketing & advertising upfront is considered normal, with most Business Brokers then being paid on a commission basis at the end of a successful sale. No matter how your Business Broker operates, make sure that all fees are discussed and understood before proceeding.

  • Trust your gut:

    The best Business Brokers sell themselves on their experience and reputation. If a Broker is pressuring you to sign quickly or giving you a bad gut feeling – then they are not the right fit for you. It is important for you to trust your instincts and find someone you believe in. Likewise, your Business Broker needs to believe they can sell your business before agreeing to come on board – it’s a two-way street!

If you are looking for the right Business Broker to sell your business, contact Core Business Brokers today. We are firm believers that business can only be successful with the right team in place. Allow us the opportunity to see if we are the right fit for you. Contact us on (02) 9413 2977 to chat to one of our experienced Brokers today, or email us at [email protected]

WHEN IS THE BEST TIME TO SELL MY BUSINESS?

For most business owners, selling occurs out of need as opposed to want. You may need to sell due to financial, health or family reasons, which unfortunately dictate one of the most crucial planning points of a sale, the question of ‘when’ it occurs.

Ultimately, if you are in the position to make a clear and calculated decision when it comes to deciding when to sell your business, for example in order to retire; you will most likely achieve a higher sale price than if the timeframe is out of your hands due to reasons outside of your control.

When is the right time to sell my business

So… I am planning to sell but am flexible with the timeframe. How do I know when the right time is?

How long is a piece of string? Many people may tell you that certain periods of the year are busier than others – and whilst this may be correct, it is based on past figures which are never a sure-fire, concrete determination of what the future holds. Instead of thinking of the right time being a certain period in the year, it is better to equip yourself and your business with the attributes that make it appealing to a potential buyer whenthe right time arises.

Below is a ‘to-do’ list when preparing your business for sale:

  1. Improve your profits: Some buyers may not mind a ‘fixer-upper’, but it’s safe to say that most will look for a profitable business. If you know your business well, try to sell when the profits are high, as opposed to waiting for them to drop and then trying to convince buyers that profits will improve. “Trend is your friend” and buyers love to see a positive trend in sales and profits.
  2. Make sure your financials are up-to-date and accurate: A great time to sell would be directly after your EOFY tax return. All documents are recent, relevant and (hopefully) neatly compiled. However, we do sell businesses throughout the year, so don’t let this deter you.
  3. Ask your Core Business Broker about past trends in your industry: You may only sell your business once, but they sell businesses like yours every day. Their insight could save you a great deal and achieve a better sale price at the end of the day.
  4. Standardise documents and procedures: A potential buyer will want to step into a business that is being run efficiently, with a clear outline of operations and procedures. Try and ensure that the ‘goodwill’ of your business does not rely entirely on you personally.
  5. Resolve outstanding issues and debts: Eliminate liabilities and resolve outstanding debts and any issues that may detract from the business prior to listing your business for sale. Think of your business like a person who is getting ready for their first date. They want to look good, but ultimately if it’s all for show, they are going to be discovered eventually. Make some positive changes prior to listing your business for sale and genuine, qualified buyers will show interest. Work on a SWOT analysis with continual improvements to the areas that will be attractive to a buyer.

If you are planning to sell your business, contact Core Business Brokers today. We will be more than happy to discuss your industry, past sale history and guide you through your business sale process. Contact us on (02) 9413 2977 to chat with one of our experienced and friendly team or email us at [email protected]

Core Business Brokers   Suite1A, Level 2, 802 Pacific Highway, Gordon 2072. 
P: (02) 9413 2977   F: (02) 9413 3818   E: [email protected]