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What to do when selling your business
When it’s time to sell your business — whether you operate it as a sole trader, partnership or company — you’ll want to get the best price you can for it. You’ll also need to know how to sell it, who to and what it’s really worth.
You can think about selling your business at any stage, from before you launch to approaching retirement. Some people start a business with a plan to sell it within a set time, eg five to seven years. For others the idea to sell comes after they’ve established the business or have been running it for years and want to step back.
Selling a business is a specialist area so it’s worth getting an advisor to help you.
Getting ready to sell
To get the best return on your investment in a business, you need it to be in the best shape when it goes for sale. Here’s what you should look at.
Finances
Potential buyers will want a thorough look at your finances to make sure they’re buying a sound, profitable business. If your finances don’t reinforce your asking price, you may need to sell for less or reinvest to make the business more attractive. To make sure your finances are in the best shape for sale:
- sell assets your business doesn’t use
- stop investing in long-term projects
- produce a realistic financial forecast — a good business advisor will spot an exaggerated one.
Business plan
Potential buyers will ask for your business plan, so if you don’t have one, create one. It should show your business works efficiently, has good management and how you plan to grow it.
Start-up business plan
Don't let the name fool you — this template is useful any time you need a full and thorough business plan.
Customise it to suit — this could mean adding in extra sections, or cutting out ones that you don't need.
Quick-focus business plan
Quick-focus planning to make sure you work on the right things for your growing business - every day.
It’s important to take time to reflect on your business strategies and plan. It doesn’t have to be a difficult or time-consuming task.
Address any staffing problems before you put the business up for sale.
Buyers may be put off if there’s a risk of inheriting difficult employment relationships.
Resolving employment issues has more tips.
Succession planning
A succession plan puts in place steps to run your business successfully without you. Having a plan is essential if you’re thinking of selling or taking a back seat role.
Assets
Make sure all machinery and other equipment is well maintained. Give your premises a thorough clean and fix any maintenance issues.
Risks
A new owner will want to hit the ground running, so:
- Lock key suppliers and customers into contracts.
- Sort out looming problems, eg paperwork for a compliance change.
- Get up to date with health and safety standards and other obligations you have as owner or employer.
Legal issues
Nothing raises the alarm to buyers like finding out there’s a legal case pending you failed to mention. Before you put the business up for sale, make sure you:
- resolve any legal disputes
- protect your intellectual property
- own all assets on the balance sheet.
Information for buyers
Prepare an information memorandum with details about your business — this will outline what buyers need to know to make their decision. It should be big on facts and show how they could grow the business.
Think carefully about what to put in your information pack. Leave out confidential information that could be leaked, eg about your customers, and get professional help to write it.
Who’ll buy your business?
Finding and negotiating with potential buyers is time-consuming and specialist work, so think about hiring a business broker to do it for you. A broker will know which type of buyer will be interested in your business and how to approach them. Buyers may be:
- employees — this is known as a management buyout
- competitors
- suppliers or customers
- entrepreneurs
- investment groups.
What’s my business worth?
It may sound obvious, but your business is worth what someone will pay for it. Owners and shareholders often over-inflate their business’ worth. An advisor can help you accurately value your business based on its assets, how much profit it makes, or how much it would cost the buyer to start the business from scratch.
Selling
New Zealand has no capital gains tax, so you won’t be taxed on profits you make selling a business. However, there are other taxes and obligations that may apply. Your options when selling can also differ depending on the business structure you have. It’s worth speaking to a professional advisor for specialist help.
Sole traders
Selling your assets may result in GST to pay if buyer and seller are both GST registered. It’s best to talk to an accountant about GST and income tax before you sell your assets.
Selling shares
If you hold all shares in your company, you may want to sell the business as a going concern. When selling shares, it’s your responsibility to update shareholder details with the Companies Office. You can also ask a director with company authority to this on your behalf.
Selling your shares could have tax implications — talk to your accountant or tax advisor first.
Intellectual property
Your intellectual property (IP) can be a huge part of the value of your business to a buyer. So, make sure any IP your business owns has been protected and registered.
