Are you making the right decision?

You need to ask yourself whether or not you are making the right decision by selling your business.  Do you just need a break or get someone else to run the company while you still own it.

Remember, if you are selling when the business is struggling – this will obviously have a serious impact on the sale price.

There are number of alternatives to selling your business including refinancing, merging, selling assets or going public.

Develop a buyer’s kit

A buyer’s kit is a good way of putting together all the key information the buyer needs to know when buying a business – this kit should include:

  • Details of the business structure
  • Key achievements
  • Employees
  • Products and services
  • Customer demographics
  • Financials
  • Assets
  • Future goals

Will the sale of business restrict me in my trade?

This is something you seriously need to consider because sale of business agreements generally contain clauses that mean you are not allowed to trade in your area of expertise.  Watch out for this, because after a break you might be raring to go and any restrictions could really hurt your future employment or business prospects.

Tax Obligations

You may have to consider GST if you are selling capital assets.  These transactions are complex and you should consider speaking with a business lawyer to get some advice.

However, as a general piece of advice you won’t have to pay GST on the sale if:

  • You supply the buyer with everything that is necessary to operate the business
  • You operate the business up until the very day it is sold
  • The buyer is registered for GST
  • You get a payment when you sell the business
  • It is also likely that you will be liable to pay capital gains tax if you sell your business.

When you sell your business you will also be required to lodge final tax returns and you are also under a strict obligation to notify the ATO if you sell the business.

What happens to my employees when I close my business?

The new owner is under no obligation to employ all or even any of your employees.

Hence, in many cases you will need to terminate your employees and if they are actual employees and not contractors you will have to payout their employee entitlements and give them notice of termination, which may include an employee termination payment (ETP). An ETP is a lump-sum payment paid to some employees when their employment is terminated.

An ETP can include things like:

  • Payment instead of notice
  • A ‘golden handshake’
  • A payment of compensation given to them for losing their job (you are not obliged to pay this)
  • Rostered days off which haven’t been used
  • Unused sick leave (not generally required by law)
  • You will also need to ensure that the following are paid:
  • Fringe benefits tax (FBT)
  • Pay as you go tax (PAYG)
  • Superannuation

Prepare a Sale of Business Agreement

One of the best ways to avoid risks, protect your interests and make sure you fulfil your obligations is to hire a lawyer to draft a formal sale of business agreement.  A sale of business agreement formalises the terms of the sale and can save you significant costs in the long term.

Lachlan McKnight

Next Steps

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