Selling your business can be an emotional rollercoaster – it’s an exciting new chapter in your life and also sad to depart from a relationship with your clients, employees and business partners. Whether you are taking a short break, or permanently exiting your business, we set out some points to first consider before selling.
Why Are You Selling Your Business?
Are you selling the business because it is no longer profitable? Has competition increased in your area of operation? Or are you looking for a career change? It’s important that you can articulate the reasons why you are selling to yourself, and to potential buyers. It will also influence the way you will draft your business sale agreement.
If you want to sell your business because you are looking to start your next project, it might mean you will want no restrictions on your ability to trade in the future. If you are selling because your business decreased in revenue, buyers may value your business less. And if you are selling because you want to make a quick profit, the timing might not be a driving consideration.
Standard Contracts for the Sale of Business
You will require a sale of business agreement that sets out exactly what you will transfer to the purchaser, and will cover the following:
- The essential details of your business and transferable assets (e.g. intellectual property, equipment and employees);
- The guarantees you might provide the purchaser.
- If a lease exists on your business premises, how that lease will be transferred to the buyer.
Selling Your Business Might Restrict Your Future Endeavours
Commonly, a buyer will want to restrict you from similar trading in nearby areas or for a fixed period. As such, your sale of business agreement will include a restrictive covenant as a standard term. The restraint of trade clause will only be valid and enforceable if it is reasonable. Consider whether you are comfortable leaving your neighbourhood to trade elsewhere for a period, of if you prefer to negotiate with your buyer.
If you are selling the business, will your employees remain? If you had a close relationship with your staff, you would likely want them to have undisrupted employment. Should your buyer be willing to retain your employees, there are several options available.
Terminating your staff
- The purchaser has no obligation to employ any of your employees. You will need to terminate your employees appropriately by providing them with a notice of termination and final payment.
- You must make any employees entitled to a final payment in a lump-sum. You will also need to ensure that you comply with any awards, employment contracts, enterprise agreements or other registered agreements in making the final payment, which includes unused annual leave or accrued long service leave.
- If you have no time to provide appropriate notice, you can make a payment in lieu of notice.
Transferring your staff to the new business owner:
- If your buyer and employees agree, your staff can move to the new owner. A clear list of the employee entitlements can be set out in your business sale agreement.
In any case, it is important you think about your employees before you sell your business. It is not only a matter of general courtesy, but there are also steps you will need to take by law.
When selling your business, you will need to consider privacy – especially if you are transferring your customer database along with the sale. Businesses may disclose personal information for the sale within the reasonable expectations of the individuals concerned. Business owners should audit the information they collect and de-identify the information when disclosing it for sale.
If you are unsure, you can sell the personal information separately if you have the consent of the individuals concerned before the sale is complete, or the sale of personal information is required or authorised by law.
It is important that you don’t rush the decision about whether you should sell your business or your negotiations with the purchaser. If you have any questions, get in touch with our sale of business lawyers of 1300 544 755.