Looking to sell your business and not sure where to start or how to maximise your result, we understand that this can be a stressful time and have put together a list of issues that business owners or investors need to consider when selling a business.

What you are selling and the tax implications

When selling your business you need to understand what you are selling and how you are selling it. These two terms may sound like the same thing but do not be fooled they do have different tax consequence!

Let’s assume that your current business is under a company structure and the company sells assets of the business (e.g., goodwill, equipment, intangible items etc.,) in this situation the company will obligation to address the immediate tax consequences. If your plan is then to flow the proceeds of the sale to the shareholders, then there is separate tax issue that will need to be understood and managed.  Depending on the circumstances there may be options for managing this in a more tax efficient way which we can discuss with you.

An alternative situation is where shareholders are selling their shares in the company and then the tax impact is managed at the shareholder level and dealt with by each of the shareholders and not at a company level.

Essentially the overall outcome from a tax and cashflow point of view could be quite different. It’s important that you get you contact our office as soon as you are thinking of selling the business to understand the taxing points triggered by the sale and what options might be available to improve the overall outcome, including the availability of any concessions and the conditions that need to be met to qualify for these concessions.

GST consequences of any sale also need to be established up front. If the business is sold as a going concern, that is, it’s ‘business as usual’ despite the sale, then the sale is generally GST-free.  We always recommend ensure the sale is GST-free and that the parties have agreed in writing that certain strict conditions have been satisfied.  If this issue is not dealt with, the vendor may be left with an unexpected GST liability that will basically come out of the sale proceeds.

Finally, consider the liabilities. If you sell your business and some of the staff had chosen to leave and not continue with the new owners, the vendors will generally be responsible for the cost of redundancies and other employment costs.

Get your house in order

Most purchasers will undertake some form of due diligence on your business.  If you understand what the likely purchasers are looking for, you have the opportunity to ensure that your business is positioned the best possible way. We recommend tidying up your balance sheet or sorting out other parts of the business in advance of the sale.  This way, you remove possible objections to the sale and improve your chances of achieving a favourable sale price.

Control the flow of information

During the sale process it’s not unusual to be asked for a countless pieces of information about your business, its performance, and for your financials.  It may be very exciting that there is a lot of interest in your business, just remember that not all prospective buyers are buyers – many will be looking for market knowledge and intelligence.  It’s important to cascade information through to prospective buyers as required to limit the potential of over-sharing with competitors.