The reasons a business owner might decide to sell their business are many and varied. Sometimes the decision is driven by an expression of interest or the ripeness of the market, while other times the sale may be forced on a business owner due to circumstances outside their control, such as a dispute between business partners.

To get the most value for your business, prior to having lawyers draw up any contracts, it's important to conduct due diligence on your business to ensure it's ready for sale.

Here are our top 6 tips for getting your business 'sale ready'.

Review

Reviewing what you currently have in place, and by extension what you can actually sell, is critical. This will often form part of a buyer's due diligence.

Prior to selling your business, it's important to consider:

• what the key contracts of the business are, and whether they are in writing;
• whether leasing arrangements exist over any of the business assets;
• whether your employment contracts are in writing, and whether they contain provisions that protect your intellectual property;
• whether there are any instances of current or threatened legal action;
• how current your licences and any relevant permits are;
• whether all statutory employee entitlements are accurately reflected in your books;
• what intellectual property is owned by the business, and whether it's registered or unregistered; and
• whether your key contracts are assignable, and in turn what is required to effect the assignment of those contracts.

PPSR

Creditors often register security interests on the Personal Property Securities Register (PPSR) without advising you or having any requirement to serve you with a financing statement. This can occur where you have waived compliance with this requirement. This can cause registrations to be made against your business which are no longer current or may be incorrect.

Therefore, it's important to conduct a PPSR search on your business and review which registrations are either no longer current or are incorrect. You should also consider issuing amendment demands for the effective discharge of any registrations that should no longer be registered on the PPSR or should not have been registered in the first place.

If your financier has a security interest over all your business assets, you should consider what is required to remove that security interest.

Business premises

Do you currently own your business premises or occupy them under a lease or licence? If your premises are leased or licensed, consent from the landlord will generally be required for an assignment of the lease or licence. This can take time and should be factored into the sale process.

If you are not transferring the right to occupy the premises as part of the business sale, you may need to consider what 'make good' obligations you need to take care of before you vacate the premises. If so, what is the likely cost of complying with these obligations?

Assets

You should identify which assets are used in the conduct of the business and those that are not. The condition and value of the assets being sold is important. You should consider whether these assets will be sold unencumbered and, if so, what it will cost to remove the encumbrances.

You will also need to consider how you will treat any partly completed work ie, work-in-progress. Will you finish this work, or will it be taken over by the buyer? Similarly, how will you deal with any deposits that you've already received for partly completed work?

Employees

One of the most important things to consider when selling a business is whether the sale will involve the transfer of existing employees. If so, you'll need to provide the buyer with a schedule of their names, positions, and accrued employee entitlements.

Employee entitlements prior to the completion of the sale will also be your responsibility. There may be an adjustment for any accrued entitlements in favour of the buyer at completion of the sale.

You should ensure that any non-salary benefits given to employees are documented. Buyers are entitled to know what each transferring employee expects to receive as part of their remuneration package.

You should also identify any 'key employees' whose employment by the buyer is likely to be a condition precedent to the sale. Ask yourself whether you’re likely to be vulnerable to a 'key employee' deciding whether or not they will transfer their employment to the buyer. If so, the situation with that employee will need to be handled delicately.

Key advisers

Having key advisers in your corner is crucial. Consult your lawyer and accountant on whether the sale of your business as a 'going concern' for GST purposes is the most effective way to proceed, or whether the sale should be effected another way, for example, by the sale of shares in your company.

Remember to consider any tax implications that might arise from the sale of your business and have a good understanding of how to determine a purchase price that fully reflects the value of what you are selling.

Finally, before entering into negotiations with a prospective buyer, you should ask them to sign a confidentiality agreement (otherwise known as a non-disclosure agreement or 'NDA') to ensure they don't use your business information other than for considering whether to enter into the sale transaction.

For personalised advice on selling your business, contact Hardies Lawyers today. Explore our blog for more insights into business succession planning and stay informed about the latest strategies to future-proof your business.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.