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Exiting From Your Business Requires More Than A Farewell – Legal, Business & Tax Issues You Need To Consider When Selling Your Business

Preparing a business for sale is a complex and often long-term process, which requires a lot of preparation and planning. Yet few business owners are prepared when it comes time to be sale-ready.

Exit planning involves careful preparation and consideration of the business, tax and legal implications. Here are five tips to help business owners prepare for a successful business sale:

Prepare Early

Business owners should start preparing early to minimise the risk of a failed transaction and to optimise the value of their business. Anticipation of internal and external factors, including market conditions, must be anticipated and managed prior to sale.

A seller must provide key factual information for a potential buyer through the due diligence process. Due diligence is a time-consuming process requiring a lot of documentation. A business’s failure to keep adequate and accurate financial records can severely damage its sale price and slow down the sales process.

Reduce Risk For Buyers

Sellers must be very careful to ensure that information provided and statements made in the lead up to the sale are accurate and not open to interpretation. Be sure to provide a clear business forecast and a realistic ongoing business model.

All verbal conversations with the buyer should be followed up in writing, such as email, as informal conversations can be relied upon for Court proceedings after the sale. Ensure the contract of sale is well-drafted and states in plain English what you understand to be the agreement.

Evaluate Different Exit Options

It is not necessary to sell 100 per cent of the business immediately. A gradual exit can benefit both parties. For purchasers, it retains customer goodwill and gives new owners time to adjust to the business’ operations. For sellers, there is the advantage of keeping an interest in the business and demonstrating its worth to the new owners.

If you are passing the business on to family members, the transition may be over a number of years. A formal succession plan can help guide the business through a smooth transfer of control.

Understand Tax Implications

Sellers may need to pay GST or capital gains tax (CGT) on some of all the business assets they sell, including land or buildings, or intangible assets, such as patents, licences or goodwill. Some small business concessions and exemptions may apply. Sellers will also need to cancel their GST registration within 21 days of ceasing business, and their ABN within 28 days. Business records will need to be kept for at least five years after the end of the financial year in which the business is sold.

Avoid Insufficient Disclosure

To avoid a claim that there had been insufficient disclosure of financial information; sellers must ensure that the Disclosure Statement accompanying the Contract of Sale (or information provided in due diligence) complies with statutory requirements. Where the Disclosure Statement is sufficient, the responsibility is then shifted to the buyer to conduct their own enquiries about the suitability of the business.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier