The sale of a business is a complex process; there are often unforeseeable issues that may arise between buyers and sellers, along with financial and tax implications to take into account.
Here are a few things to keep in mind when preparing for the sale of your business:
The timing of the transaction is one of the most crucial considerations. Establish a closing date or range of dates and plan the rest of the sale process accordingly. Consider the settlement period, any handover training that may be required for the buyer and arrangements for your existing staff. As a seller you may have different priorities to the buyer, for example, you may want to sell quickly; therefore you need to be willing to compromise for the best outcome.
Sellers must have a well-organised, comprehensive and efficient due diligence program to reduce transaction risk and costs for all parties. Having un-organised records may be met with skepticism; a skeptical buyer may require stricter warranties, more security for post-closing obligations or even worse, a purchase price reduction.
Careful planning can lead to significant tax advantages. Take into account whether Capital Gains Tax (CGT) and Goods and Services Tax (GST) applies to the sale of your business. For example, you may need to include GST in the price of individual business assets or repay GST credits. Small businesses may also be able to take advantage of the CGT concessions available to them.
The way you structure the contract to sell your business can have different tax consequences. Generally, capital gains tax is assessable in the year the contract was entered unto, even if some of the proceeds will be received in later years. Working with your accountant is a good starting point when discussing your business’ exit strategy.