How to sell a business in Australia: from first steps to settlement

Selling a small business is usually a single, high-stakes transaction for the owner, and most of the work happens before a buyer ever sees the listing. This guide walks through the steps in the order they usually happen, so you know what to prepare and who to involve at each stage.

Start before you list

Buyers judge a business on its records. The better organised yours are, the more confident a buyer will be, and the easier it is to defend your price.

• Financial statements. Have your profit and loss statements and balance sheets ready for at least the last three years, prepared by your accountant. Make sure they match the tax returns and Business Activity Statements you lodged.
• Owner's expenses. If personal or one-off costs run through the business, list them separately with evidence. Buyers and their accountants will only accept these "add-backs" if you can show them.
• The lease. Check how long is left, what options you have, and what the lease says about assigning it to a new tenant. Talk to your landlord early: a buyer cannot usually take over the premises without the landlord's consent.
• Licences and permits. Make a list of every licence, permit and registration the business relies on, and find out which can transfer to a new owner and which the buyer must apply for.
• How the business runs without you. Write down the processes that live in your head, introduce key customers and suppliers to your staff, and reduce the number of things only you can do. A business that depends on its owner is harder to sell.
• What is included. Prepare a list of equipment, fixtures, vehicles and stock, and note anything that is leased or financed.

Work out a realistic price

Most small businesses are priced from their profit, adjusted for what the business owns and how risky it looks to a buyer. Our guide to how small businesses are valued explains the usual methods.

An asking price that is far above what similar businesses sell for tends to sit on the market, and a listing that has been around for a long time can make buyers wonder what is wrong. An independent valuation from an accountant or a broker's appraisal gives you a number you can explain.

Decide how you will sell

You can sell through a business broker or sell privately. Our guide to selling through a broker or privately compares the two.

Selling through a broker. A broker can appraise the business, market it, keep the sale confidential, screen buyers and manage the negotiation. Brokers charge a fee, often a commission on the sale price and sometimes marketing costs as well. Compare more than one, ask what is included, and read the agency agreement closely, especially how long it runs and whether it is exclusive.

Selling privately. You keep control and avoid commission, but you handle enquiries, confidentiality agreements, site visits and negotiation yourself. You will still need an accountant to prepare the figures and a solicitor to prepare the contract.

Owners and brokers can both list a business on BizExchange. Buyers send their enquiries straight to the seller or the listing agent.

Prepare the listing and information pack

Buyers scanning listings look first for the asking price, turnover, profit, years trading, the lease and the reason for sale. When you publish a profit figure, say which one it is: net profit, EBITDA or owner's benefit mean different things, and buyers compare like with like.

If you want the sale kept confidential, leave the business name, exact address and anything identifying out of the public listing, and share those details once a buyer has signed a confidentiality agreement. Many sellers prepare an information pack (often called an information memorandum) for serious buyers, covering the history of the business, its financials, staff, suppliers, the lease and what is included in the sale.

Everything you tell a buyer must be accurate. Overstating takings or leaving out problems can expose you to claims of misleading or deceptive conduct after the sale.

Handle enquiries and qualify buyers

Reply to enquiries promptly. Before sharing detailed information, ask the buyer to sign a confidentiality agreement and find out:

• whether they have run a business, or one like yours, before
• how they plan to pay, and whether they have finance approval or proof of funds
• when they want to buy.

Arrange visits so they do not disrupt trade or alert staff and customers before you are ready to tell them.

Negotiate and sign

When a buyer makes an offer, the main points are often recorded in a short, usually non-binding heads of agreement: the price, the deposit, what is included, the handover period and any conditions. Your solicitor then prepares the contract of sale.

Common conditions in a business sale contract include the buyer obtaining finance, completing due diligence, the landlord consenting to the lease assignment, a franchisor approving the buyer, and licences being transferred. Contracts also commonly cover how stock is valued at settlement, a restraint of trade that stops you opening a competing business nearby, and how long you will stay on to train the buyer.

From contract to settlement

Between signing and settlement, a few things need to happen in parallel.

• Due diligence. The buyer checks your financials, lease, contracts and records. Answer questions quickly and in writing.
• The lease. The landlord assesses the buyer and consents to the assignment, or a new lease is negotiated. business.gov.au notes that you remain responsible under the lease until the transfer is complete.
• Staff. If employees move to the new owner, the Fair Work rules on transfer of business decide which entitlements carry over and which you may need to pay out. Both sides should agree how this works in the contract.
• GST. The sale may be GST-free as a sale of a going concern, but only if every ATO condition is met, including a written agreement before the sale.
• Settlement day. Stock is usually counted and valued, rent and other outgoings are adjusted between you and the buyer, and the keys, passwords and records are handed over.

After the sale

You cannot transfer your ABN to the buyer. Cancel it once you have finished trading and lodged your final returns, and either transfer or cancel your business name. Tell your suppliers, your bank and your insurer.

Selling a business can trigger capital gains tax. Small business owners may be eligible for one or more of the ATO's small business CGT concessions, which can reduce, defer or remove a capital gain, but each has eligibility conditions. Talk to your accountant before you sign the contract, because how the sale is structured can affect what you can claim.